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6 NYCRR Parts 242 and 200 Regulatory Impact Statement

Introduction

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 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. 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 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 proposed Program revisions also create the Cost Containment Reserve (CCR), which will help provide additional flexibility and cost containment for the 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 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. This program revision also helps to address the potential for a budget source to avoid its compliance obligation as a result of the business closing or falling into bankruptcy prior to the third year compliance obligation. 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 the 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 deleting the 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 burning of fossil fuels to generate electricity is a major contributor to climate change because fossil-fuel generators emit large amounts of CO2, the principal greenhouse gas (GHG). Overwhelming scientific evidence suggests that a warming climate poses a serious threat to the environmental resources and public health of New York State - the very same resources and public health the Legislature has charged the Department to preserve and protect. The warming climate threatens the health and well-being of the State's residents and citizens, the State's property, and the natural resources held in trust by the State, including, but not limited to, the State's air quality, water quality, marine and freshwater fisheries, salt and freshwater wetlands, surface and subsurface drinking water supplies, river and stream impoundment infrastructure, and forest species and wildlife habitats. Not only will the proposed Program revisions help to further counter the threat of a warming climate, they will also produce significant environmental co-benefits in the form of improved local air quality, and a more robust, diverse and clean energy supply in the State.

Statutory Authority

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.

Brief synopses of the statutory sections that grant the Department authority to promulgate these revisions to the Program and to prevent and control air pollution are outlined below.

ECL Section 1-0101. This section declares that it is a policy of New York State to conserve, improve and protect its natural resources and environment and control air pollution in order to enhance the health, safety and welfare of the people of New York State and their overall economic and social well-being. Section 1-0101 further expresses, among other things, that it is the policy of New York State to coordinate the State's environmental plans, functions, powers and programs with those of the federal government and other regions and manage air resources to the end that the State may fulfill its responsibility as trustee of the environment for present and future generations. This section supports the Department's efforts to work with other States in the region to address greenhouse gases in a coordinated fashion. This section further declares that the Department shall promote patterns of development and technology that minimize adverse impacts on the environment.

ECL Section 1-0303. This section defines the term "pollution." Pollution is defined as "the presence in the environment of conditions and or contaminants in quantities of characteristics which are or may be injurious to human, plant or animal life or to property or which unreasonably interfere with the comfortable enjoyment of life and property throughout such areas of the state as shall be affected thereby." The reduction in the CO2 emissions cap and the budget adjustments will remove conditions and contaminants from the environment which are injurious to human, plant and animal life or to property throughout the State.

ECL Section 3-0301. This section empowers the Department to coordinate and develop programs to carry out the environmental policy of New York State set forth in section 1-0101. Section 3-0301 specifically empowers the Department to: provide for the prevention and abatement of air pollution; cooperate with officials and representatives of the federal government, other States and interstate agencies regarding problems affecting the environment of New York State; encourage and undertake scientific investigation and research on the ecological process, pollution prevention and abatement, and other areas essential to understanding and achievement of the environmental policy set forth in section 1-0101; monitor the environment to afford more effective and efficient control practices; identify changes in ecological systems and to warn of emergency conditions; enter into contracts with any person to do all things necessary or convenient to carry out the functions, powers and duties of the Department; and adopt such regulations as may be necessary, convenient or desirable to effectuate the environmental policy of the State. This section supports the Department's coordinated scientific and programmatic efforts to address greenhouse gases through the RGGI program.

ECL Section 19-0103. This section declares that it is the policy of New York State to maintain a reasonable degree of purity of air resources. In carrying out such policy, the Department is required to balance public health and welfare, the industrial development of the State, propagation and protection of flora and fauna, and the protection of personal property and other resources. To that end, the Department is required to use all available practical and reasonable methods to prevent and control air pollution in the State. 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" and "the protection of physical property and other resources," while also helping to ensure the continued reliability and adequacy of the state's electricity supply. By revising the Program to reduce the CO2 emissions cap, provide for budget adjustments, add a cost containment reserve, and create interim compliance obligations, the Department is further able to balance these competing interests.

ECL Section 19-0105. This section declares that it is the purpose of Article 19 of the ECL to safeguard the air resources of New York State under a program which is consistent with the policy expressed in section 19-0103 and in accordance with other provisions of Article 19.

ECL Section 19-0107. This section defines the terms "air contaminant," "air pollution," and "air contamination source." "Air contaminant" is defined as "a dust, fume, gas, mist, odor, smoke, vapor, pollen, noise or any combination thereof." "Air pollution" is defined as "the presence in the outdoor atmosphere of one or more air contaminants in quantities, of characteristics and of a duration which are injurious to human, plant or animal life or to property or which unreasonably interfere with the comfortable enjoyment of life and property throughout the state or throughout such areas of the state as shall be affected thereby." The term "air contamination source" is defined as "any source at, from or by reason of which there is emitted into the atmosphere any air contaminant . . ." CO2 is an "air contaminant" that causes "air pollution" as defined in the ECL because it is a gas that is present in the outdoor atmosphere in quantities that engenders and/or provokes climate change, which is injurious to life and property in New York State. Electric generating units are an "air contamination source" because they are responsible for approximately one-quarter of all CO2 emissions in New York State. The Department's authority under the ECL to regulate CO2 as an "air contaminant" was buttressed by the decision of the United States Supreme Court in Massachusetts v. Environmental Protection Agency, 127 S. Ct. 1438 (2007), that the United States Environmental Protection Agency ("EPA") has the authority to regulate CO2 as an "air pollutant" under the Clean Air Act ("CAA"). Under the CAA, an "air pollutant" is defined as "any air pollutant agent or combination of agents, including any physical, chemical, biological, radioactive (including source material, special nuclear material, and byproduct material) substance or matter which is emitted into or otherwise enters the ambient air." 42 U.S.C. section 7602(g). The definitions of "air contaminant" and "air pollutant" under the ECL are broader than the definition of "air pollutant" under the CAA.

ECL Section 19-0301. This section declares that the Department has the power to promulgate regulations for preventing, controlling or prohibiting air pollution, and shall include in such regulations provisions prescribing the degree of air pollution that may be permitted and the extent to which "air contaminants" may be emitted to the air by any "air contamination source" in any area of the State. The Department also has the authority to cooperate with other states, interstate agencies, or international agencies with respect to the control of air pollution or air contamination. This section provides the Department with authority to revise the Program to reduce the CO2 emissions cap and to provide for the budget adjustments.

ECL Section 19-0303. This section provides that the terms of any air pollution control regulation promulgated by the Department may differentiate between particular types and conditions of air pollution and air contamination sources. It supports the RGGI program in that cap-and-trade was identified as an effective manner or condition of regulation for the particular air pollutant and type of sources subject to the Program. In particular, fossil fuel-fired power plants that meet the 25 MW nameplate capacity applicability threshold were identified as a significant stationary emitter of CO2 in New York State and the RGGI region, and thus are subject to the cap-and-trade program. At the same time, other types of sources of CO2 emissions, including other existing stationary sources of CO2, are not subject to the Program. Similarly, sources of other air pollutants may be subject to types of regulations other than a cap-and-trade program.

This section also requires the Department to include analysis in the RIS explaining state regulatory requirements that are more stringent than those found in the Clean Air Act or its implementing regulations. There is no CO2 stationary source cap-and-trade program established by the Clean Air Act or its implementing regulations. Federal regulatory requirements governing sources of CO2 emissions are discussed further in the Federal Standards section of this RIS, found on page 71. The Federal Standards section also explains how the Program and the proposed revisions would meet criteria in Section 19-0303 (4), if it was applicable to this rulemaking. Further, the cost-effectiveness of the Program and whether reasonably available alternatives exist is discussed at length in the Alternatives section of the RIS, found at page 67. The RIS thoroughly discusses the public health and environmental protection benefits of the Program and the proposed revisions in the Needs and Benefits section, found at page 14.

ECL Section 19-0305. This section authorizes the Department to enforce the codes, rules and regulations established in accordance with Article 19. Section 19-0305 also empowers the Department to conduct or cause to be conducted studies and research with respect to air pollution control, abatement or prevention.

ECL Section 71-2103 and Section 71-2105. These sections set forth the civil and criminal penalty structures for violations of Article 19. These sections provide authority to the Department to create the interim compliance obligation to better ensure compliance with the Program.

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 below as background and context for the proposed Program revisions.

Public Authorities Law (PAL). The proposed Program revisions are designed to allocate the CO2 allowances (including CCR allowances) to the Energy Efficiency and Clean Energy Technology (EE&CET) Account, which was created and will be administered by NYSERDA. NYSERDA will continue to administer the EE&CET Account so that CO2 allowances will be sold in a transparent allowance auction or auctions and the proceeds of the auction or auctions will be used to promote and reward investments in energy efficiency, renewable or non-carbon emitting technologies, and/or innovative carbon emissions abatement technologies with significant carbon reducing potential.

The proposed Program revisions will create the Cost Containment Reserve (CCR) which will help provide additional flexibility and cost containment. NYSERDA will ensure that 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 five million allowances.

NYSERDA currently administers energy efficiency and clean technology programs funded by the EE&CET allocation pursuant to its authority under PAL Section 1854 and Title 9-A of Article 8 of the PAL, and will continue to do so under the proposed revisions to the Program. Section 1854 states that "the purposes of NYSERDA shall be to develop and implement new energy technologies consistent with economic, social and environmental objectives, to develop and encourage energy conservation technologies."

Title 9-A establishes the green jobs - green New York program for the purposes of promoting energy efficiency, energy conservation and the installation of clean energy technologies; reducing GHG emissions; supporting sustainable community development; creating green job opportunities, including opportunities for new entrants into the State's workforce, the long-term unemployed and displaced workers; and using innovative financing mechanisms to finance energy efficiency improvements through energy cost savings. The green jobs - green New York program is funded through appropriation from the RGGI allowance auction proceeds.

"Energy conservation technologies" are defined in PAL Section 1851(11) as "all methods of conserving energy, of improving the efficiency of energy utilization and of preserving and protecting the environment...in connection with the use of energy." PAL Section 1891(12) defines "qualified energy efficiency services" and provides a list of qualified measures that are eligible for funding under the Program.

NYSERDA's authority under PAL Section 1854 includes the following:

"1. Research, development and demonstration. To conduct, sponsor, assist and foster programs of research, development and demonstration in new energy technologies including but not limited to: energy conservation; production of power from new sources with emphasis on renewable energy sources such as solar, wind, bioconversion and solid waste; storage of energy with emphasis on inertial and battery storage; conversion and/or technological improvement of facilities now utilizing nuclear fission energy and fossil fuel energy technologies; transmission and distribution of power; and conversion of energy and improvements of efficiencies of such conversion, including the power after assessing and taking into account environmental considerations thereof, to establish, acquire, operate, develop and manage facilities therefor."

"2. The provision of services. To provide services required for the development and use of new energy technologies and related methods by the industrial, commercial, medical, scientific, public interest, educational and governmental organizations within the state, including the power to establish, acquire and develop facilities therefore not otherwise available within the state, and to operate and manage such facilities."

"11. To advise and assist the governor and legislature in the development and implementation of state policies relating to energy and energy resources."

"18. To provide for the deposit of all or a portion of the proceeds collected by the authority from the auction or sale of emissions allowances allocated by the department of environmental conservation to the authority pursuant to regulations adopted by the department of environmental conservation to a green jobs-green New York fund to be established in the custody of the commissioner of taxation and finance. The monies in such fund shall be available for the green jobs-green New York program pursuant to title nine-A of article eight of this chapter."

Although NYSERDA's Allowance Auction Program will not be revised as part of this rulemaking, this authority allows NYSERDA to continue to administer the EE&CET Account so that the proceeds of the auctions can be used to promote and reward investments in energy efficiency, renewable or non-carbon-emitting technologies, and/or innovative carbon emissions abatement technologies with significant carbon reduction potential and similar energy conservation technologies. The stated purposes of the EE&CET Account are consistent with NYSERDA's authority to conduct, sponsor and assist programs related to new energy technologies and qualified energy efficiency services and to provide services related to their development.

PAL Section 1855. The general powers that are relevant to NYSERDA's authority to administer the EE&CET Account to promote and reward investments in energy efficiency, renewable or non-carbon-emitting technologies, and/or innovative carbon emissions abatement technologies with significant carbon reduction potential, and to sell allowances (including CCR allowances) in a transparent auction are also set forth in PAL Section 1855. NYSERDA's authority under Sections 1854 and 1855 enables it to accept and sell the allowances and utilize the proceeds to promote and reward investments related to energy conservation technologies similar to the stated purposes of the EE&CET Account.

NYSERDA's authority to auction the CO2 allowances and CCR allowances is enumerated in their powers:

"10. To enter into any contracts and to execute all instruments necessary or convenient for the exercise of its corporate powers and the fulfillment of its corporate purposes under this title."

"14. To accept any gifts or grants or loans of funds or property or financial or other aid in any form from the federal government or any agency or instrumentality thereof or from the state or from any other source and to comply, subject to the provisions of this title, with the terms and conditions thereof."

"17. To do all things necessary or convenient to carry out its corporate purposes and exercise the powers given and granted by this title."

Legislative Objectives

Through numerous legislative enactments, the Legislature has directed and empowered the Department to promote the safety, health and welfare of the public, protect the State's natural environment, and also help assure a safe, dependable and economical supply of energy to the people of the State. 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. Power plants that burn fossil fuel emit significant quantities of CO2, a chief contributor to the unnatural warming of our climate. 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. By continuing to impose emissions limitations on fossil fuel-fired electric generating sources under a revised flexible cap-and-trade program, the Department is acting to preserve and protect the State's environment while maintaining a reliable supply of electricity. These air quality improvements will mitigate the impacts of climate change in New York, thereby contributing to public safety, health and welfare. The regulatory flexibility provided under the revisions to the Program, including the CCR and Offset provisions, helps to ensure continued reliability and adequacy of the State's electricity supply, assists in the furtherance of public health, and is necessary for continued industrial development and preservation of physical property.

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.)4 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's5 Spring Environmental Conference on April 18, 2013 and Annual Meeting in Bolton Landing on September 19, 2012.

Needs and Benefits

Introduction

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. This section outlines the Department's analysis of the need for the proposed Program revisions, principally the proposed reduction in the CO2 emissions cap and budget adjustments, and discusses its considerable benefits.

First, this section explains the updated basic science of global climate change and the greenhouse effect and forcing effect that emissions of anthropogenic GHGs have on climate change. Second, this section explains the need for a binding CO2 emissions cap and budget adjustments as illustrated by the most recent scientific findings and projected future impacts of climate warming on the region. Third, this section explains the Program benefits from the revisions to the Program including the substantial reduction of power plant emissions and the benefits of the CCR and Offsets programs. Finally, it explains the benefits associated with the auctioning of allowances, including CCR allowances, for purposes of energy efficiency and clean energy technologies.

The Greenhouse Effect and the Warming Climate

A naturally occurring greenhouse effect has regulated the earth's climate system for millions of years. Solar energy from the sun that reaches the surface of the earth is radiated back out into the atmosphere as long wave or infrared radiation. 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. This is important because CO2, as well as some other GHGs, persist in the atmosphere for hundreds of years and, thus, have a lasting effect on the climate. Today, atmospheric CO2 concentrations have reached 400 parts per million --- nearly 40 percent higher than preindustrial levels, and according to ice core data, higher than at any point in the past 800,000 years.6

There is clear scientific consensus that anthropogenic emissions of CO2 are contributing to the observed warming of the planet as presented in the Fourth Assessment Report of the Intergovernmental Panel on Climate Change.7 The large and persuasive body of research demonstrates through unequivocal evidence that the Earth's lower atmosphere, oceans, and land surfaces are warming; sea level is rising; and snow cover, mountain glaciers, and Arctic sea ice are shrinking. The Earth's climate is changing, with adverse consequences already well documented across the globe, in our nation and in the State. Extreme heat events are increasing and intense storms are occurring with greater frequency. Many of the observed climate changes are beyond what can be explained by natural variability of the climate.8, 9

In 2005, the United States National Academies of Science and the national academies of 10 other industrial nations reached a number of important conclusions about the need for government action to reduce emissions.10 In response to scientific projections of likely severe climate impacts if global average temperatures rise more than approximately 3.6°F (2°C) above pre-industrial levels, the U.S. signed the 2009 Copenhagen Accords setting the target of limiting temperature increases to 2°C. The reduction of the emissions cap is further supported by a recent report analyzed by New York and the Participating States during Program review called "America's Climate Choices." This 2011 report by the National Academy of Sciences, recently emphasized again, the pressing need for action to reduce emissions and to limit the magnitude of climate change:

  • Climate change poses significant risks for a broad range of human and natural systems;
  • The faster emissions are reduced, the lower the risks posed by climate change. Each additional ton of GHG emitted commits us to further change and greater risks;
  • It is imprudent to wait for unacceptable impacts to occur before taking action because the effects of GHG emissions do not fully manifest themselves for decades, and once manifested, many of these changes will persist for hundreds, even thousands of years; and
  • The sooner that serious efforts to reduce GHG proceed, less pressure will be made for steeper (and thus likely more expensive) emission reductions later.11

Impacts from Emissions Already Observed in New York's Climate

The need for the reduction of CO2 emissions is clearly supported by numerous direct impacts that have been observed in New York State.

  • Temperature. 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.12 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 2010.13
  • Sea level rise. Sea level in the coastal waters of New York State and up the Hudson River has been steadily rising over the 20th century, chiefly as a result of thermal expansion of ocean waters, melting of land ice and local changes in the height of land relative to the height of the continental land mass. 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).14

Future Impacts from Emissions Predicted for New York's Climate

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 project uses regionalized climate projections to develop adaptation recommendations and is a climate change preparedness resource for planners, policymakers, and the public.15 The ClimAID project predicts the following:

  • Air temperatures. Air temperatures are expected to rise across New York, by 1.5F° to 3°F by the 2020s, 3F° to 5.5°F by the 2050s, and 4F° to 9°F by the 2080s. By the end of the century, the greatest relative warming is projected for the northern regions of the State. The ranges in projected temperatures reflect potential future GHG emissions scenarios. The lower ends of the temperature ranges represent the projected outcome of lower emissions scenarios in which society dramatically reduces heat-trapping gas emissions and atmospheric GHG levels begin to stabilize. Likewise, the higher ends represent higher emissions scenarios in which emissions continue to increase and atmospheric GHG concentrations continue to rise. Sharp cuts in global emissions could result in smaller increases in temperatures, while a continuation of business as usual could result in increases greater than the highest projections.
  • Precipitation. Annual average precipitation in New York is projected to increase by up to 5 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. The increased precipitation will not be evenly distributed over the course of the year; much of it is likely to occur during the winter months, while slightly reduced precipitation is possible for the late summer and early fall. The recent trend of increased heavy downpours and less light precipitation is expected to continue.
  • Sea Level Rise. 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.16 The New York State Sea Level Rise Task Force, charged by the State Legislature with assessing impacts to the State's coastlines from rising seas and recommending protective and adaptive measures, adopted the sea level rise values in Table 1 for two regions in New York. The projections for sea level rise represent the middle range of values from model-based probabilities (16 global climate models by three GHG emissions scenarios) rounded to the nearest inch. The projections for sea level rise with rapid ice-melt scenario assume acceleration of recent rates of ice melt in the Greenland and west Antarctic ice sheets.
Table 1. Projected Sea Level Rise in Two Regions of New York
Lower Hudson Valley & Long Island 2020s 2050s 2080s
Sea level rise 2 to 5 in 7 to 12 in 12 to 23 in
Sea level rise with rapid ice-melt scenario 5 to 10 in 19 to 29 in 41 to 55 in
Mid-Hudson Valley & Capital Region 2020s 2050s 2080s
Sea level rise 1 to 4 in 5 to 9 in 8 to 18 in
Sea level rise with rapid ice-melt scenario 4 to 9 in 17 to 26 in 37 to 50 in

Source: New York State Sea Level Rise Task Force Report. December, 2010.17

  • Changes in Extreme Events. Extreme climate events, such as heat waves and heavy rainstorms, significantly impact New York's communities and natural resources. Based on climate models, the ClimAID researchers developed probabilities of the future occurrence of extreme events in New York State. These results demonstrate that heat waves are expected to become more frequent and intense, heavy precipitation events are expected to become more frequent, and storm-related coastal flooding is expected to increase with rising sea levels.

Future Impacts from Emissions for New York State's Resource Sectors

The need for the significantly reduced CO2 emissions cap and budget adjustments are further supported by the ClimAID Study18 which enumerates a number of predictions specifically for New York's valued resources.

Water Resources

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. Heavy downpours have increased over the past 50 years and this trend is projected to continue, causing an increase in localized flash flooding in urban areas and hilly regions. Flooding has the potential to increase pollutants in the water supply and inundate wastewater treatment plants and other vulnerable development within floodplains. Less frequent summer rainfall is expected to result in additional, and possibly longer, summer dry periods, potentially impacting the ability of water supply systems to meet demands. Reduced summer flows on large rivers and lowered groundwater tables could lead to conflicts among competing water users. Increasing water temperatures in rivers and streams will affect aquatic health and reduce the capacity of streams to assimilate effluent from wastewater treatment plants.

Coastal Zones

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. Sea level rise will lead to more frequent and extensive coastal flooding. Warming ocean waters raise sea level through thermal expansion and have the potential to strengthen the most powerful storms. Superstorm Sandy gained additional strength from unusually warm upper ocean temperatures in the North Atlantic. Sea level rise occurring in the New York City area increased the extent and magnitude of coastal flooding during Sandy with estimated costs of damage and loss in New York State exceeding 30 billion dollars.

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. Sea level rise will greatly amplify risks to coastal populations and will lead to permanent inundation of low-lying areas, more frequent flooding by storm surges, and increased beach erosion. Loss of coastal wetlands reduces species diversity, including fish and shellfish populations. Some marine species, such as lobsters, are moving north from New York, while other species, such as the blue claw crab, are increasing in the warmer waters. Saltwater could reach farther up the Hudson River Estuary, potentially contaminating water supplies. Tides and storm surges may propagate farther, increasing flood risk both near and far from the coast. Sea level rise may also become the dominant stressor acting on vulnerable salt marshes.

Ecosystems

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, with the loss of spruce-fir forests, alpine tundra and boreal plant communities. Climate change favors the expansion of some invasive species into New York, such as the aggressive weed, kudzu, and the insect pest, hemlock woolly adelgid. Some habitat and food generalists (such as white-tailed deer) may also benefit. A longer growing season and the potential fertilization effect of increasing CO2 could increase the productivity of some hardwood tree species, provided growth is not limited by other factors such as drought or nutrient deficiency. CO2 fertilization tends to preferentially increase the growth rate of fast growing species, which are often weeds and other invasive species. 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. Increasing water temperatures will negatively affect brook trout and other native coldwater fish.

Agriculture

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. Increased weed and pest pressure associated with longer growing seasons and warmer winters will be an increasingly important challenge. Water management will be a more serious challenge for New York farmers in the future due to increased frequency of heavy rainfall events, and more frequent and intense summer water deficits by mid-to late-century.

Public Health

Demand for health services and the need for public health surveillance and monitoring will increase as the climate continues to change. Heat-related illness and death are projected to increase, while cold-related deaths are projected to decrease. Increases in heat-related death, however, are projected to outweigh reductions in cold-related death. More intense precipitation and flooding along the coasts and rivers could lead to increased stress and mental health impacts, impaired ability to deliver public health and medical services, increased respiratory diseases such as asthma, and increased outbreaks of gastrointestinal diseases. Cardiovascular and respiratory-related illness and death will be affected by worsening air quality, including more smog, wildfires, pollens, and molds. Vector-borne diseases, such as those spread by mosquitoes and ticks ('e.g.', West Nile virus and Lyme disease), may expand or their distribution patterns may change, either of which may adversely affect additional populations. Water supply, recreational water quality, and food production will be at increased risk due to increased temperatures and changing precipitation patterns. Water- and food-borne diseases are likely to increase without mitigation and adaptation intervention.

Transportation

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. Coastal flooding will be more frequent and intense due to sea level rise. Major adaptations are likely to be needed, not only in the coastal zones, but also in the Hudson River Estuary all the way to Troy and Albany as sea level rise and storm surge propagate up the tide-controlled Hudson River. Materials used in transportation infrastructure, such as asphalt and train rails, are vulnerable to increased temperatures and frequency of extreme heat events. Air conditioning requirements in buses, trucks, and trains, and ventilation requirements for tunnels will increase.

Low-lying transportation systems such as subways and tunnels, especially in coastal and near-coastal areas, are at particular risk of flooding as a result of sea level rise, storm surge, and heavy precipitation events. Transportation systems are vulnerable to ice and snowstorms, although requirements for salting and snow removal may decrease as precipitation tends to occur more often as rain than snow. Freeze/thaw cycles that disturb roadbeds may increase in some regions as winter temperatures rise. Runways may need to be lengthened in some locations since hotter air provides less lift and hence requires higher speeds for takeoff. Newer, more powerful aircraft can reduce this potential impact. The Great Lakes may see a shorter season of winter ice cover, leading to a longer shipping season but lake levels may decrease due to increased evaporation. Reduced ice cover may result in an increase in "lake-effect" snow events, which cause various transportation problems.

New York State has the most days per year of freezing rain in the nation. This phenomenon affects air and ground transportation directly and indirectly through electric and communication outages. It is unknown how climate change will influence the frequency of freezing rain in the future.

Telecommunications

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. The delivery of telecommunication services is sensitive to power outages, such as those resulting from the increased electrical demand associated with heat waves, which are expected to increase with climate change. Communication lines and other infrastructure are vulnerable to heavy precipitation events, flooding, and freezing rain. In coastal and near-coastal areas, sea level rise in combination with coastal storm surge flooding will be a considerable threat later this century.

Energy Sector

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. More frequent heat waves will cause an increase in the use of air conditioning, stressing power supplies and increasing peak demand loads. Increased air and water temperatures will decrease the efficiency of power plants as they decrease cooling capacity.

Coastal infrastructure is vulnerable to flooding as a result of sea level rise and coastal storms; hydropower is vulnerable to projected increases in summer drought. The availability and reliability of solar power systems are vulnerable to changes in cloud cover although this may be offset by advances in technology; wind power systems are similarly vulnerable to changes in wind speed and direction. Biomass energy availability depends on weather conditions during the growing season which will also be affected by a changing climate.

Transformers and distribution lines for both electric and gas supply, as was observed recently due to Superstorm Sandy, are vulnerable to extreme weather events, such as heat waves and flooding. Higher winter temperatures are expected to decrease winter heating demand, which will primarily affect natural gas markets, while increases in cooling demand will affect electricity markets; such changes will vary regionally. The indirect financial impacts of climate change may be greater than the direct impacts of climate change. These indirect impacts include those to investors and insurance companies as infrastructure becomes more vulnerable and those borne by consumers due to changing energy prices and the need to use more energy.

As outlined above, climate change is expected to impact New York's communities, economy and energy systems, affecting public health and safety, environment and natural resources, commerce and infrastructure. Consistent with its mission to protect the safety, health, and welfare of the public and the environmental resources of the State, the Department proposes the substantial reduction of the CO2 emissions cap and budget adjustments, to address the specific potential harms identified and the overall nature and extent of threat of harm to the State from climate change.

Emissions from Power Plants in New York

The burning of fossil fuels in New York power plants is a major contributor to increased atmospheric concentrations of CO2. In 2012, power plants in the State subject to the Program burned fossil fuels to produce approximately 35 million tons of CO2 and significant amounts of other harmful pollutants that impact the health and welfare of New Yorkers. Since CO2 emissions from the energy sector represent approximately one-fifth19 of the State's total GHG emissions, any effort to curb the State's contribution to atmospheric concentrations of CO2 must address CO2 pollution from power plants.

In 1992, 154 nations, including the United States signed a treaty establishing the goal of stabilizing atmospheric GHG concentrations at a level that would prevent dangerous anthropogenic interference with the climate system. In response to scientific projections of likely severe climate impacts if global average temperatures rise more than approximately 3.6°F (2°C) above pre-industrial levels, the U.S. signed the 2009 Copenhagen CO2 Accord20 setting the target of limiting temperature increases to 2°C. As reported in 2007 by the IPCC, the best available scientific estimates indicate that there is an approximately 50 percent likelihood that the 2°C threshold will be exceeded when atmospheric CO2 concentrations rise above 450 parts per million (ppm). Scientists project that stabilizing total atmospheric GHG concentrations (CO2 plus the other long-lived GHGs, which include methane, nitrous oxide, ozone and several manmade fluorine-containing gases) at 450-500 ppm would provide a medium (approximately 50 percent) likelihood that warming will not exceed 2°C.

Scientific estimates of global emission levels required to maintain this concentration of atmospheric GHGs indicate that developed nations will need emission reductions of 80 percent from 1990 levels by mid-century. Given the considerable global CO2 emissions already released to the atmosphere between 2000 and 2011, there is significant risk of exceeding the 2°C target unless decisive, global action is taken within this decade. The International Energy Agency's (IEA) 'World Energy Outlook Special Report 2013: Redrawing the Energy Climate Map' concludes the possibility of keeping the rise in global average temperature to 2°C now appears more remote than it was several years ago, but proposes near-term action to reduce emissions from the power sector and target energy efficiency measures in buildings, transportation and industry.

By modeling effective GHG emissions reduction, New York can encourage other states and nations to turn around the accumulation of heat-trapping GHG in the atmosphere. New York's acknowledged leadership position confers a unique opportunity to influence the ultimate costs the State and its citizens will bear from climate change.

Components of the Proposed Program Revisions

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. This represents 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 (cap) 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 its portion of the 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 its portion of the regional cap (approximately 38.93 percent) in each allocation year over the six year period 2015-2020.

To provide additional flexibility and cost containment the proposed Program revisions also create the Cost Containment Reserve (CCR). 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 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.

As designed and implemented, the proposed reduction to the CO2 emissions cap and budget adjustments will also achieve significant additional reductions outside of the power sector through reinvestment of auction proceeds for end-use energy efficiency and greenhouse gas emission reduction projects.

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. This program revision also helps to address the potential for a budget source to avoid its compliance obligation as a result of the business closing or falling into bankruptcy prior to the third year compliance obligation. 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 the first two years in each three year compliance period. The proposed Program amendments 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 deleting the early reduction allowance provisions. The majority of the proceeds from the sale of New York's allowances will be continue to be dedicated to strategic energy or consumer benefits, such as energy efficiency and clean energy technologies.

Benefits from the Proposed Program Revisions

Global action is needed to solve climate change, however renewed action in New York now will have local and Statewide benefits. Significant economic opportunities and environmental and health co-benefits such as reduced air pollution and improved public health are expected from programs that mitigate GHG emissions. First and foremost the reduction of the emissions cap and budget adjustments are projected to result in cumulative emission reductions, within the Participating States (2014 through 2020, including offsets), of 86 million tons of CO2. In addition, the Program's mandatory, market-based carbon control mechanisms will remain unchanged and will continue to function properly and deliver positive economic benefits.21, 22, 23, 24, 25

In New York, auction proceeds will continue to support additional emission reductions through investments in energy efficiency, renewable and clean energy and innovative carbon-abatement technologies, as guided by the RGGI Operating Plan.26 NYSERDA regulations established the Advisory Group of stakeholders, which will continue to represent a broad array of energy and environmental interests, to provide advice on how best to utilize auction proceeds to implement the goals of the Program of reducing CO2 emissions in the most economically-efficient manner with the least cost to electricity consumers. The Operating Plan will continue to be reviewed and revised on an annual basis and the Advisory Group will convene to provide input.

The most recent version of the Operating Plan dated November 2012 estimates that the current investment of a portion of New York's proceeds in the Green Jobs - Green New York, Residential Energy Services, Municipal Water and Wastewater, and Industrial Process Improvement programs during a three year period will result in non-discounted lifetime savings of 1.9 million tons of CO2 emissions and a non-discounted lifetime savings of $390 million on customer energy bills.

Projected benefits from the proposed revisions are detailed in a study by the Northeast States Coordinated Air Use Management (NESCAUM) that estimates the macroeconomic impacts of the program in the RGGI region. The study uses the Regional Economic Models, Inc. Policy InsightTM (REMI) model, a multi-state structural economic forecasting and policy analysis model that produces projections of employment, gross state product, and personal income.27 The macroeconomic results reflect the potential impacts associated with the proposed revisions to the program (including the investment of auction proceeds in an estimated portfolio of energy efficiency, clean energy and carbon abatement programs). The study estimates that the cumulative changes in New York's Gross State Product and Personal Income associated with the proposed revisions to the program will be about $5.8 billion and $4.7 billion, respectively (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). In the context of New York's total Gross State Product and total Personal Income these changes represent small but positive changes.

While the Operating Plan and macroeconomic modeling provide estimates of future benefits associated with the investment of projected auction proceeds in New York, NYSERDA will continue to prepare quarterly status reports that will include: a summary of program activities and implementation; an estimate of program benefits; and an accounting of program costs and expenditures associated with the actual receipt of proceeds through that point in time. The last quarterly progress report of the year also serves as an annual evaluation and status report. The annual report will also provide information on the geographic distribution of Program funding and benefits across the State.

The annual report for the quarter ending December 31, 2012 reflects benefits associated with spending through that date. The table below illustrates the estimated cumulative annual benefits (as of December 31, 2012) at the portfolio and program levels from all currently operational projects installed since the start of the existing Program. These metrics, prepared by NYSERDA Program evaluation and implementation staff, represent the State's best estimate of Program benefits to date and are adjusted over time as individual programs are evaluated and results are adjusted based on those evaluation studies.

Summary of Cumulative Portfolio Benefits through December 31, 201228
Benefits Results through December 31, 2012
Net Greenhouse Gas Emission Savings11 (Annual Tons CO2e2) 56,764
Net Electricity Savings (Annual MWh) 16,895
Renewable Energy Generation (Annual MWh) 4,345
Net Natural Gas Savings (Annual MMBtu) 203,118
Net Fuel Oil Savings (Annual MMBtu) 337,096
Net Propane Savings (Annual MMBtu) 16,593
Net Steam Savings (Annal MMBtu) 15,969
Net Wood Savings (Annual MMBtu) 3,079
Net Kerosene Savings (Annual MMBtu) 1,026
Net Gasoline Savings (Annual MMBtu) -
Net Residual Oil Savings (Annual MMBtu) 144
Net Diesel Savings (Annual MMBtu) -
Total Fuel Savings (Annual MMBtu) 577,024
Annual Energy Bill Savings to Participating Customers ($ Million) 12.0

1 These emission reductions are associated with both electric and fossil-fuel saving measures. Under a cap-and-trade system, the total number of emission allowances is determined by regulation. Regulated entities can purchase allowances and collectively emit up to the cap that is currently in place. Therefore, in the near term, electric efficiency projects may not decrease the overall amount of emissions going into the atmosphere. Nevertheless, electric efficiency projects will reduce end-users' responsibility or footprint associated with emissions from electricity production.
2 CO2e stands for carbon dioxide equivalent and describes the amount of CO2 that would have the same global warming potential.

NYSERDA projects the discounted lifetime savings of the cumulative values in the table to result in approximate: fuel savings of 8.7 million MMBtu; electricity savings of 294,000 MWh; bill savings of $223 million; and CO2 emission reductions of 753,000 tons. These annual values were converted to lifetime savings by applying a measure life assumption for each program that is based on the life of the longest-lived measure for that specific program. A five percent discount rate is applied to weight the impacts of the benefits over time.

The Program portfolio also results in non-energy benefits. For instance: Program funds were leveraged to obtain $100 million in Federal funding to support a New York based Photovoltaic (PV) Manufacturing Consortium; ten regional sustainability plans were created with the involvement of more than 2,500 New York stakeholders; and a series of technical analyses related to offshore wind development have been completed.

Complementary GHG Programs in New York

The Program and the proposed revisions to the Program, along with Greenhouse Gas Exhaust Emission Standards (6 NYCRR Part 218-8), CO2 Performance Standards for Major Electric Generating Facilities (6 NYCRR Part 251), and the Renewable Portfolio Standard (RPS) are key components of New York's comprehensive GHG reduction policy. Working together, these programs benefit New York by reducing GHG emissions from the electricity generating sector and the motor vehicles sector, which are the two largest contributors of GHG emissions in New York State.

First, the Department adopted California GHG exhaust emission standards (6 NYCRR Subpart 218-8) for new motor vehicles to reduce emissions of GHGs, including most recently with amendments adopted in 2012. Section 177 of the Clean Air Act (42 United States Code Section 7507) permits states other than California to adopt motor vehicle emission standards, provided those standards are identical to California's standards. New York has chosen to adopt California's more stringent motor vehicle standards since the early 1990s, in order to obtain emission reductions from new motor vehicles not provided by Federal new motor vehicle standards.

Secondly, the Department promulgated CO2 Performance Standards for Major Electric Generating Facilities (6 NYCRR Part 251) in 2012, which prevents new high carbon emitting sources in the power sector (like coal-fired plants without carbon capture and sequestration or another control technology) and establishes CO2 emission standards for new major electric generating facilities. Part 251 also establishes CO2 emission standards for the expansion of existing electric generating facilities that increase electrical output capacity by at least 25 MW. The Program and Part 251 work together - RGGI sets an overall cap on CO2 emissions from all new and existing fossil fuel-fired sources 25 MW and larger, while Part 251 sets a specific source-level CO2 emission limit on all new and expanding sources 25 MW or larger.

Finally, the primary objective of the RPS is to improve New York's environment and increase energy diversity in order to reduce reliance on fossil fueled energy sources within a competitive energy market. The RPS seeks to increase the amount of electricity purchased from renewable sources in New York to 30 percent by 2015. Eligible energy technologies include anaerobic digestion, biomass, fuel cells, hydroelectric, solar, tidal, and wind. The RPS features centralized procurement managed by NYSERDA which manages the RPS Program and solicits bids for renewable energy.

Climate change is a global problem and effective action at the national and international level is necessary in order to stabilize atmospheric GHG concentrations at acceptable levels. Notwithstanding this, action now at the State and regional level to reduce GHG emissions and to implement the revisions to the Program will benefit and reduce the risk of injury to New York and its citizens and residents from climate change. The risks of injury from a warming climate increases with the rate and magnitude of the warming, and in turn, the rate and magnitude of warming is primarily dependent upon the level of CO2 emissions. The reductions in CO2 emissions from power plants under the revisions to the Program contribute to a reduction in the risk of injury to New York and its citizens and residents from global climate change. In addition, by implementing the proposed revisions to the Program now, New York and the Participating States can:

  • Reduce the long-term costs of addressing climate change. By acting now, states can avoid the need for more disruptive measures later.
  • Position the region ahead of competitors. Taking early and continued action to reduce the region's carbon-intensity will create a competitive advantage relative to other parts of the country when action at the national and international level becomes unavoidable.
  • Capture environmental co-benefits. Reducing power sector carbon emissions provides numerous environmental co-benefits, including reduced emissions of other pollutants associated with fossil-based electricity generation. Additional co-benefits will be realized through the offsets component of the program which encourages afforestation, reduced agricultural emissions, and reduced consumption of natural gas, propane, and home heating oil. Additionally, co-benefits will be realized by allocating almost 100 percent of the CO2 allowances to the EE&CET account to be auctioned by NYSERDA and have the resulting proceeds utilized for the account's purposes.
  • Drive new technology. By attaching tangible financial value to avoided carbon emissions, the proposed Program revisions provide a market incentive for developing and deploying new technologies that can increase fuel efficiency, utilize non-carbon resources (including renewable technologies such as wind and solar power), and reduce or eliminate carbon emissions from combustion sources. In addition, to the extent that the auctioning of allowances will spur additional investments in clean energy technologies, the auctions drive the deployment of new technologies in the State.
  • Promote improved supply-side and demand-side efficiency. The proposed Program revisions create a direct incentive to reduce the fossil fuel inputs required to produce electricity through more efficient generating technologies. The Program's offsets provisions will continue to create incentives to promote improved demand-side efficiency, including not only more efficient technologies for reducing electricity consumption, but technologies for reducing primary energy consumption - both natural gas and home heating oil - in residential and commercial buildings. In addition, the allocation of offset allowances to create incentives for energy efficiency provides direct incentives for end-use and supply-side energy efficiency projects in the State.
  • Improve the region's energy security and reduce its exposure to higher energy prices. By creating a market incentive for low-carbon and non-carbon electricity technologies and by promoting increased supply-side and demand-side efficiency, the proposed Program revisions reduce the Northeast's long-term exposure to high fossil fuel energy prices. Efficiency improvements and advances in new energy technology fostered by the proposed Program revisions can help buffer the region from the considerable economic risks associated with continued dependence on these fuels.
  • Stimulate economic development. The proposed Program revisions provide a positive stimulus for economic growth in the region by creating incentives for new technologies that could be developed in-region, promoting a more efficient and cleaner electricity generating sector, prompting other activities through its offsets program and improving efficiency. NYSERDA's investment of proceeds from the auctioning of allowances provides further economic benefits.

As outlined above, the revisions to the Program will provide numerous benefits and continue to position New York as a leader in innovative and progressive climate change policies. In the absence of a comprehensive federal program, New York must continue to monitor issues that may minimize or threaten the effectiveness of the Program such as the potential for emissions leakage.

Emissions Leakage

Emissions Leakage refers to a potential shift of electricity generation from capped sources subject to the Program, to higher-emitting sources not subject to the Program, in and outside of the State.29 Emissions leakage is defined as the increase in CO2 emissions outside the RGGI region that may "net out" (or partially eliminate) a portion of the emissions reductions made within the RGGI region. Emissions leakage is an important concept because electricity is routinely transmitted across regional boundaries to meet economic and reliability objectives.

The Department examined emissions leakage in the Final Generic Environmental Impact Statement for the existing Program, accepted on August 13, 2008, and has continued to evaluate the potential for emissions leakage since the Program's inception. New York and the Participating States examined leakage for CO2 and other pollutants from the electric generating sector, such as NOx and SO2. However, since the federal action under the Clean Air Interstate Rule (CAIR) resulted in emissions caps for NOx and SO2, from the electric generating sector, emissions may shift, but will not increase as a result of the Program revisions.

Over the past few years, the RGGI Electricity Monitoring Staff Working Group (Staff Working Group) analyzed potential emissions leakage and issued two annual monitoring reports.30, 31 These reports summarized data for electricity generation, electricity imports, and related CO2 emissions for the Participating States from 2005 through 2010 and concluded that during the first two years of RGGI Program operation (2009 and 2010), there was no increase in CO2 emissions or the CO2 emission rate (pounds of CO2 per megawatt hour, or lb CO2/MWh) from non-RGGI electric generation serving load in the ten-state RGGI region. Thus, for that period, these reports found no evidence of emissions leakage caused by the existing Program.

In addition to the Electricity Monitoring reports issued by the Participating States, the New York ISO Inc., (NYISO) together with researchers at Rensselaer Polytechnic Institute (RPI), evaluated whether the Program's cost of compliance has resulted in emissions leakage. The NYISO and RPI developed econometric models to explain power transfers and CO2 emissions from power plants in Pennsylvania from 2008 through 2010. While the models concluded that electrical loads, fuel costs, and non-emitting generation all have statistically significant impacts on emissions and power transfers, or both, the model was not able to show a statistically significant impact from the Program costs on either of the variables.32 In other words, the report concludes that there is no evidence that the existing Program has caused emissions leakage.

Thus, according to the reports and studies conducted to date, no evidence of emissions leakage associated with the existing Program has been found. In order to estimate the amount of potential leakage associated with the proposed revisions to the Program including the cap reduction, the electricity sector modeling analysis estimated CO2 emissions in and outside of the region. Cumulative CO2 emissions reductions were compared between the RGGI region and the Eastern Interconnection33 (which includes the RGGI region) plus the eastern Canadian provinces. Cumulative emission reductions within the Participating States (2014 through 2020, including offsets) are projected to be 86 million tons of CO2. Over the same period, cumulative reductions in the entire Eastern Interconnect region are projected to be 28 million tons of CO2. While the emissions leakage reports are being offered to guide New York and the region in making critical policy decisions, if monitoring indicates that leakage associated with the Program occurs and needs to be addressed, a number of states including New York,34 are already moving to implement significant energy efficiency programs which help mitigate the effects of any emissions leakage.

Further, at the conclusion of Program review, the Participating States committed to engage in a collaborative effort informed by discussions with their respective ISOs to: identify and evaluate potential imports tracking tools; conduct further modeling to ascertain energy and price implications of any potential policy on emissions associated with imported electricity; and pursue additional legal research, leading to a workable, practicable, and legal mechanism to address emissions associated with imported electricity.

Benefits Associated with the Program Revisions with Respect to the Auction and Allocation of Allowances to Energy Efficiency and Clean Energy Technologies (EE & CET).35

Like the current Program, the proposed Program revisions require the Department and NYSERDA to continue to auction almost 100 percent of the allowances to ensure that the value of the cap-and-trade program inures to the consumers who pay for the Program, while at the same time allows for the rapid distribution of allowances into the marketplace where generators subject to the Program may purchase them. In further support of these goals, the auctions will continue to achieve, but will not be limited to, the following objectives: achieving fully transparent and efficient pricing of allowances; promoting a liquid allowance market by making entry and trading as easy and low-cost as possible; being open to participation by the categories of bidders determined by NYSERDA or its designee in consultation with the Auction Advisory Committee which meet the minimum financial requirements; monitoring for and guarding against the exercise of market power and market manipulation; being held as frequently as is needed to achieve design objectives; avoiding interference with existing allowance markets; aligning well with wholesale energy and capacity markets; and not acting as a barrier to efficient investment in relatively clean existing or new electricity generating sources.

NYSERDA's New York CO2 Allowance Auction regulation, found at 21 NYCRR 507, establishes the rules for conducting auctions of CO2 allowances to be administered by NYSERDA or its designee as part of the Program. This regulation is not proposed to be revised as part of this rulemaking, however, New York intends to continue to participate in uniform regional auctions for the allowances that it will be offering for sale. As part of the regional auction process, New York and the Participating States will continue to follow specific design elements for: reserve price; auction structure and format; allowance sale schedule; level of participation; treatment of unsold allowances; notice of auctions; monitoring; and auction results. Additional details and rules for each regional CO2 allowance auction are provided in the Auction Notice issued by New York and the Participating States for each auction.

The Reserve Price is the minimum acceptable price for each CO2 allowance in a specific auction. The reserve price at an auction is either the Minimum Reserve Price (MRP) or the Cost Containment Reserve (CCR)36 trigger price, depending on the level of demand for allowances at the auction. Its use is important for mitigating 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 revisions to the Program provide that the MRP will be set at $2.00 in 2014 and increases by 2.5 percent each year. The CCR trigger prices are set at $4.00 in 2014, $6.00 in 2015, $8.00 in 2016, and $10.00 in 2017, rising by 2.5 percent each year thereafter in order to account for inflation.

Allowance Apportionment

Apportionment is the term used to describe the process by which the Participating States propose to distribute the regional emissions cap to individual state budgets. While there were a number of discussions surrounding apportionment during this Program review, it was agreed that a full review would not occur until the next Program review slated for 2016. Therefore, New York retains the same percentage of the regional cap established under the existing Program (approximately 38.93 percent). Notwithstanding this, in allocation years 2014, 2015, and 2016 only, New York is proposing to reduce its base budget from the amount that would otherwise result from this percentage by 200,000 allowances. Concurrently, the State of Rhode Island's base budget would increase by 200,000 allowances over that same time frame. New York is one of five RGGI states (also DE, MA, MD and VT) that has agreed to this temporary adjustment of their apportionment in order to provide more allowances to Rhode Island. When RGGI was initially established, allowances were apportioned among the states largely on the basis of emissions. While most RGGI states have experienced emissions from the affected source sector well below their portion of the regional cap between 2009 and 2012, emissions increases in Rhode Island have exceeded Rhode Island's apportioned percentage substantially in each year of the program. The temporary adjustment of allowances is intended to reduce Rhode Island's "shortfall" until the RGGI states have the opportunity for a thorough evaluation of the apportionment of allowances under the regional cap during the next program review planned for 2016. That evaluation will consider whether the apportionment formula should be changed and, if so, what criteria should govern that apportionment: emissions, electricity consumption, population etc.

It should be noted that this reduction does not change the State's percentage as it is applied to the interim adjustments or the cost containment reserve (CCR). Each of these will be based on the existing and continuing apportionment percentage of approximately 38.93 percent. In addition, the proposed rule eliminates the Reduction in the CO2 Budget Trading Program base budget currently required under the limited exemption for units with an enforceable permit condition restricting the supply of the unit's annual electrical output to the electric grid to less than or equal to 10 percent of the annual gross generation from the unit. This will result in New York having more allowances to auction, despite the temporary reapportionment of some allowances to Rhode Island, than if it retained this provision.

Further, while this temporary reduction alters the cap trajectory for New York and Rhode Island relative to the 2.5 percent annual reduction for 2014, 2015 and 2016, it does not impact the regional cap trajectory. In other words, the regional emissions cap will decline by 2.5 percent each year from 2015 through 2020. In addition, in 2017, both states' base budgets realign to the existing apportionment percentages, and thus move back to the 2.5 percent trajectory based on calculating that trajectory from the starting year of 2014.

Allowance Set-Asides

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. Accordingly, the Department will allocate 700,000 and 1,500,000 tons to the voluntary renewable energy market and eligible biomass set-aside and long term contract set-aside accounts, respectively, from the CO2 Budget Trading Program annual adjusted budget.

The Department proposes 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. The Program currently allows CO2 budget sources to deduct, as a compliance mechanism, CO2 emissions attributable to the burning of eligible biomass from its CO2 allowance compliance obligation. When this occurs, the amount of CO2 emissions covered by the program decreases, meaning that demand for CO2 allowances also decreases. Moreover, the amount of CO2 allowances available to other CO2 budget sources for compliance would correspondingly increase, potentially resulting in an "inflated" or over-allocated CO2 emissions budget and regional CO2 emissions cap. Thus, in order to help maintain the overall environmental integrity of the CO2 emissions budget and regional CO2 emissions cap, CO2 allowances should also be retired from the Program if and when CO2 emissions are exempted from the Program. 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. A voluntary renewable energy purchase is a purchase of electricity from renewable energy generation or from renewable energy attribute credits by a retail electricity customer on a voluntary basis. Renewable energy includes electricity generated from biomass, wind, solar thermal, photovoltaic, geothermal, hydroelectric facilities certified by the Low Impact Hydropower Institute, wave and tidal action, and fuel cells powered by renewable fuels. The renewable energy generation or renewable energy attribute credits related to such purchases may not be used by the generator or purchaser to meet any regulatory mandate, such as an RPS. The Department will continue to retire allowances under the voluntary renewable energy market and eligible biomass set-aside for voluntary renewable energy purchases.

The 700,000 ton voluntary renewable energy market set-aside was calculated using information from the renewable energy market as it relates to the RPS with allowance for some market growth. Since the inception of the Program, this set-aside has been significantly under-subscribed and less than half of the annual 700,000 CO2 allowance allocation has been retired each year on behalf of voluntary renewable energy purchases. The proposed expansion of eligibility in subdivision 242-5.3(c) increases the likelihood that the set-aside will be fully utilized. However, should the set-aside become over-subscribed, the Department maintains the proportional retirement provision in the set-aside, and any undistributed allowances from the set-aside may remain in the set-aside account for future retirement.

Under the proposed revisions to the Program, the LTC set-aside in subdivision 242-5.3(d) will continue to be available to CO2 budget sources that can demonstrate, to the Department's satisfaction that: the LTC was entered into prior to March 2006; purchasing of allowances at auction or in the secondary market leads to substantial financial hardship because the LTC applicant is unable to pass on the cost of CO2 allowances to the purchasing party under the conditions of the LTC; and the source's primary fuel is natural gas or the CO2 budget source's CO2 emission rate is no higher than 1100 lbs/MWhr. The proposed revisions to the LTC set-aside are 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.

Pursuant to the requirements in the regulation, each year the Department has reduced the quantity of allowances available for auction pursuant to the Reduction in the CO2 Budget Trading Program base budget required under the "Behind-the Meter" provisions. This limited exemption for units with an enforceable permit condition restricting the supply of the unit's annual electrical output to the electric grid to less than or equal to 10 percent of the annual gross generation from the unit requires the Department to reduce the CO2 Budget Trading Program base budget to remove the tons equal to the exempt unit's average annual emissions from the previous three calendar years. The Department is proposing to eliminate this provision because the regional cap, established under the program revisions, did not account for the emissions from these sources; therefore it is no longer necessary to subtract the emissions attributed to them from the base budget.

Summary of Needs and Benefits

New York's climate is changing, in part as a result of emissions from the burning of fossil fuels to generate electricity; reducing emissions now will help reduce the risk and magnitude of future climate change. The proposed revisions to the Program will reduce the emissions from New York power plants that cause and contribute to global climate change, while at the same time promote energy efficiency and clean renewable energy in the State. The EE & CET Allocation will ensure that electricity consumers in a deregulated market receive the maximum benefits from the revised Program at the least possible cost, and the investment of proceeds from the auction of allowances will provide further economic and environmental benefit.

Costs

Introduction

In addition to the needs analysis, 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. This section explains NYSERDA's analysis and includes a summary of the Integrated Planning Model (IPM®) modeling conducted by ICF International (ICF). 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. This section also discusses the Department's analysis of the costs associated with State and local government compliance and impacts from the proposed revisions to the Program on the New York economy and customer bills.37, 38

Costs to the Regulated Sources and the Public

Reference Case v. Program Case

Modeling analysis and review was coordinated by RGGI Inc. and New York staff, and included input from energy and environmental representatives from the Participating States and each regional ISO. To estimate the potential impacts of the revisions to the Program, IPM® compared a future with the revisions to the Program (Program Case) to a Reference Case (business as usual scenario) that projects how the electricity system would look if the Program remained unchanged and proposed revisions were not implemented. The modeling assumptions and input data were developed through a stakeholder process with representatives from the electricity generation sector, business and industry, environmental advocates and consumer interest groups. Modeling results were then presented to stakeholders for review and comment throughout the development of the proposed revisions to the RGGI program.

Reference Case

Assumptions and sources of input data are specified in detail in the "RGGI DRAFT 2012 Reference Case and Sensitivity Analyses Assumptions."39 Key assumptions and data include regional electricity demand, load shapes, transmission system capacities and limits, generation unit level operation and maintenance costs and performance characteristics, fuel prices, new capacity and emission control technology costs and performance characteristics, reserve margins and local reserve requirements, RPS requirements, national and state environmental regulations, and financial market assumptions. All estimates are based on 2010 dollars. Regional electricity demand growth projections, transmission capacities and limits, and near-term expected infrastructure additions/retirements were obtained from regional ISO sources. Long range Henry Hub natural gas prices (2020), based on forecast data from U.S. Energy Information Administration (EIA) were projected to be approximately $4.6/MMBtu (constant 2010 dollars).

A number of assumptions were used to develop the model, including: 1) the construction of new coal-fired plants was precluded to meet projected capacity shortfalls in the United States unless they include carbon capture; 2) new nuclear plant construction was limited to build outs at existing plant sites; 3) a national 3-pollutant policy (SO2, NOx and mercury) that approximates the Cross-state Air Pollution Rule (CSAPR) and the Mercury and Air Toxics Rule (MATS) is assumed; 4) RPS targets are assumed to be met in all states except New York; and 5) partial fulfillment of the RPS target is assumed in New York based upon New York ISO certainty criteria, capacity under RPS contract, and RPS funds currently approved for future solicitations (approximately $3 billion).

Under the Reference Case, generation from new gas-fired combined cycle units is projected to supply most of the growing electricity demand. Electric generation from gas-fired plants in New York is projected to increase by approximately 37 percent from 48,109 Gigawatt hours (GWh) in 2013 to 65,983 GWh in 2020. Generation from new renewable resources (primarily wind units) is projected to increase significantly, largely in response to RPS requirements. While nuclear generation is projected to decrease by about 35 percent between 2013 and 2020 due to the assumed retirement of the Indian Point units upon their respective license expiration, generation from coal-fired plants is projected to increase by about eight percent between 2013 and 2020. Finally, generation from existing oil/gas steam units is projected to decrease over time, as a result of displacement by lower-cost electricity from new gas-fired units. Additionally, net imports of electricity into New York are projected to rise from approximately 24,000 GWh in 2013 to approximately 26,800 GWh in 2016 before decreasing to about 23,000 in 2020. CO2 emissions in the Reference Case, from sources in New York State subject to the Program, are projected to increase from approximately 34.6 million tons in 2013 to about 41.7 million tons in 2020. This increase is due primarily to increased generation from new and existing gas-fired power plants to meet projected load growth.

This generation data was based on the IPM Reference Case model runs and the table displayed below:

New York Reference Case Net Generation (in GWh) 2012 2013 2014 2015 2016 2018 2020
Combined Cycle 40,419 46,344 44,171 47,637 55,024 60,509 63,743
CT 2,146 1,765 2,249 2,165 2,365 2,265 2,240
Oil/Gas 12,198 11,696 11,689 11,568 11,476 11,184 10,960
Coal 5,127 5,956 6,834 6,052 6,585 4,861 6,419
Nuclear 42,450 42,450 35,229 35,369 27,516 27,516 27,516
'Conventional Generation Total' 102,340 108,212 100,172 102,791 102,966 106,335 110,878
Other - NUG/Cogen 1,863 1,863 1,875 1,881 1,884 1,884 1,887
Existing Conventional Hydro 27,082 27,275 27,251 27,540 27,471 27,540 27,532
Existing Renewables 5,457 5,444 5,444 5,457 5,500 5,464 5,444
'Other Generation Total' 34,402 34,582 34,571 34,878 34,855 34,888 34,864
Biomass: Direct Fire - - 433 738 738 738 738
Landfill Gas 35 35 393 483 483 483 483
Hydro - - 452 556 556 556 556
Onshore Wind - - 1,155 1,908 2,627 2,627 2,627
Offshore Wind - - - - - - -
Solar 81 81 252 333 379 379 427
'New Renewable Generation Total' 116 116 2,685 4,017 4,781 4,781 4,830
Total GWh 136,858 142,910 137,428 141,686 142,602 146,004 150,572

This emissions data was based on the IPM Reference Case and the table displayed below:

Reference Case CO2 Emissions [Million Tons] 2012 2013 2014 2015 2016 2018 2020
MA 17 16 16 17 14 15 17
CT 6 7 7 7 7 7 7
ME 3 3 4 3 4 4 3
NH 2 3 2 2 2 2 2
RI 3 3 4 4 4 4 3
VT 0 0 0 0 0 0 0
NY 32 35 35 35 39 39 42
DE 4 3 4 4 5 5 5
MD 25 27 28 29 27 26 27
Total RGGI 93 96 100 102 101 102 105
Total Emissions at Affected Plants 91 93 97 100 99 99 103
Eastern Interconnect without RGGI 1,514 1,548 1,595 1,607 1,572 1,607 1,654
Total Eastern Interconnect 1,608 1,643 1,695 1,709 1,674 1,709 1,759
Total Canadian 102 98 95 97 100 101 104

Program Case

Interim Adjustment for Banked Allowances

Likewise, several assumptions were used to project impacts in the Program Case. For modeling purposes, the proposed CO2 cap of 91 million tons, based on the approximate amount of current emissions in the RGGI region, was applied to sources subject to the Program in the Participating States. In order to account for the existing private bank of allowances and in order to help create a binding cap, the proposed revisions to the Program create provisions for two distinct budget adjustments.40 In order to model the budget adjustments, the annual caps were adjusted in accordance with the model rule language and the assumption that the adjustment would account for the existing bank as well as 100 percent of the surplus (current cap and emissions) for 2013.

While the Program Case allows a limited number of emissions offsets to be purchased by affected generators and used for compliance by affected generators, the model assumes that it is not economically attractive for offset suppliers to sell their products in the RGGI market until prices reach $10 per allowance. This value is based on the reserve price under the California cap-and trade program which allows for the use of offset credits. As long as offset suppliers are able to sell similar products in the California market for prices higher than those in the RGGI market, offset suppliers would not be expected to sell into the RGGI market.

In order to obtain New York specific results, several components between the Program Case and the Reference Case are compared including generation mix, net electricity imports, changes in generation capacity, CO2 emissions, CO2 allowance prices, and wholesale and retail electricity price impacts. Electricity generation from gas-fired units in 2020 is about 1,576 GWh or 2.4 percent lower in the Program Case than in the Reference Case. Generation from coal-fired units in 2020 is about 2,376 GWh or 37 percent lower in the Program Case than in the Reference Case. Net imports into New York in 2020 are projected to be about 3,900 GWh or 17 percent higher in the Program Case than in the Reference Case. Relative to the Reference Case, total capacity additions through 2020 in the Program Case are the same (5,909 MW) as in the Reference Case. Coal capacity retirements through 2020 in the Reference Case are 408 MW while the estimated value for the Program Case is 466 MW.

This generation data was based on the differences between IPM Reference Case and IPM Program Case model runs and the tables displayed below:

New York Reference Case Net Generation (in GWh) 2012 2013 2014 2015 2016 2018 2020
CC 40,419 46,344 44,171 47,637 55,024 60,509 63,743
CT 2,146 1,765 2,249 2,165 2,365 2,265 2,240
Oil/Gas 12,198 11,696 11,689 11,568 11,476 11,184 10,960
Coal 5,127 5,956 6,834 6,052 6,585 4,861 6,419
Nuclear 42,450 42,450 35,229 35,369 27,516 27,516 27,516
'Conventional Generation Total' 102,340 108,212 100,172 102,791 102,966 106,335 110,878
Other - NUG/Cogen 1,863 1,863 1,875 1,881 1,884 1,884 1,887
Existing Conventional Hydro 27,082 27,275 27,251 27,540 27,471 27,540 27,532
Existing Renewables 5,457 5,444 5,444 5,457 5,500 5,464 5,444
'Other Generation Total' 34,402 34,582 34,571 34,878 34,855 34,888 34,864
Biomass: Direct Fire - - 433 738 738 738 738
Landfill Gas 35 35 393 483 483 483 483
Hydro - - 452 556 556 556 556
Onshore Wind - - 1,155 1,908 2,627 2,627 2,627
Offshore Wind - - - - - - -
Solar 81 81 252 333 379 379 427
'New Renewable Generation Total' 116 116 2,685 4,017 4,781 4,781 4,830
Total GWh 136,858 142,910 137,428 141,686 142,602 146,004 150,572
New York Program Case Net Generation (in GWh) 2012 2013 2014 2015 2016 2018 2020
CC 40,392 46,335 43,696 46,972 53,823 58,554 61,862
CT 2,147 1,769 2,259 2,247 2,502 2,497 2,545
Oil/Gas 12,208 11,696 11,640 11,496 11,463 11,168 10,977
Coal 5,235 5,956 5,937 3,887 4,679 3,179 4,043
Nuclear 42,450 42,450 35,229 35,369 27,516 27,516 27,516
'Conventional Generation Total' 102,432 108,206 98,762 99,971 99,982 102,915 106,943
Other - NUG/Cogen 1,863 1,863 1,875 1,881 1,884 1,884 1,887
Existing Conventional Hydro 27,113 27,253 27,305 27,450 27,389 27,431 27,443
Existing Renewables 5,457 5,444 5,457 5,472 5,500 5,469 5,444
'Other Generation Total' 34,433 34,561 34,637 34,803 34,773 34,784 34,774
Biomass: Direct Fire - - 433 738 738 738 738
Landfill Gas 35 35 393 483 483 483 483
Hydro - - 452 556 556 556 556
Onshore Wind - - 1,155 1,908 2,627 2,627 2,627
Offshore Wind - - - - - - -
Solar 81 81 252 333 379 379 427
'New Renewable Generation Total' 116 116 2,685 4,017 4,781 4,781 4,830
Total GWh 136,981 142,882 136,084 138,790 139,536 142,480 146,547

CO2 emissions from New York generators in the Program Case are projected to be 3.2 million tons (eight percent) lower in 2020 than in the Reference Case. Over the 2014-2020 time period, cumulative CO2 emission reductions from New York generators subject to the Program are projected to be 13 million tons in the Program Case as compared to the Reference Case. Although emissions from affected sources across the RGGI region are estimated to be 15 million tons (14.6 percent) lower under the Program Case than under the Reference Case in 2020, CO2 emissions from the electricity sector in New York are projected to increase 4.9 million tons or 14.7 percent between 2014 and 2020. Principally, emissions in New York are projected to rise because the Indian Point nuclear units are assumed to retire when their current licenses expire in 2013 and 2015. The IPM model projects that the generation from these non-CO2 emitting generators is likely to be replaced with fossil fuel-fired generation, at least in part. Nevertheless, CO2 emission reductions over the 2014-2020 period from affected sources across the RGGI region are estimated to be 86 million tons in the Program Case compared to the Reference Case.

This emissions data was based on the differences between IPM Reference Case and IPM Program Case model runs and the tables displayed below:

Reference Case CO2 Emissions [Million Tons] 2012 2013 2014 2015 2016 2018 2020
MA 17 16 16 17 14 15 17
CT 6 7 7 7 7 7 7
ME 3 3 4 3 4 4 3
NH 2 3 2 2 2 2 2
RI 3 3 4 4 4 4 3
VT 0 0 0 0 0 0 0
NY 32 35 35 35 39 39 42
DE 4 3 4 4 5 5 5
MD 25 27 28 29 27 26 27
Total RGGI 93 96 100 102 101 102 105
Total Emissions at Affected Plants 91 93 97 100 99 99 103
Eastern Interconnect without RGGI 1,514 1,548 1,595 1,607 1,572 1,607 1,654
Total Eastern Interconnect 1,608 1,643 1,695 1,709 1,674 1,709 1,759
Total Canadian 102 98 95 97 100 101 104
Program Case CO2 Emissions [Million Tons] 2012 2013 2014 2015 2016 2018 2020
MA 17 15 15 15 13 14 16
CT 6 7 7 7 7 7 7
ME 3 3 4 4 4 3 3
NH 2 3 2 2 2 2 2
RI 3 4 4 4 4 4 4
VT 0 0 0 0 0 0 0
NY 32 35 34 33 36 36 38
DE 4 3 3 4 4 4 4
MD 25 27 23 23 22 17 17
Total RGGI 93 96 91 91 92 87 91
Total Emissions at Affected Plants 91 93 89 89 90 85 88
Eastern Interconnect without RGGI 1,514 1,548 1,601 1,613 1,579 1,616 1,662
Total Eastern Interconnect 1,608 1,643 1,692 1,704 1,671 1,704 1,753
Total Canadian 102 97 95 97 100 102 104

Under the Reference Case, without making any proposed Program revisions, CO2 allowance prices are projected to remain at the minimum reserve price through 2020. Under the Program Case, 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. Approximately 17.6 million allowances would be obtained by the marketplace between 2014 and 2020 from the Cost Containment Reserve (CCR), which would be triggered at $4/ton in 2014 and at $6/ton in 2015.41 The acquisition of these additional allowances provides price dampening which is reflected in these estimated allowance prices.

This allowance price data was based on the IPM Reference Case and IPM Program Case model runs and the tables displayed below:

Reference Case Allowance Prices (2010$) 2012 2013 2014 2015 2016 2018 2020
NOx Regional ($/ton) 450 450 450 450 450 450 450
SO2 Regional Tier 1 ($/ton) - 50 50 50 - - -
SO2 Regional Tier 2 ($/ton) - 50 50 50 - - -
Regional CO2 ($/ton) 1.86 1.86 1.86 1.86 1.86 1.86 1.86
Program Case Allowance Prices (2010$) 2012 2013 2014 2015 2016 2018 2020
NOx Regional ($/ton) 600 600 600 600 600 600 600
SO2 Regional Tier 1 ($/ton) - 6 6 7 - - -
SO2 Regional Tier 2 ($/ton) - 21 22 23 - - -
Regional CO2 ($/ton) 1.86 1.86 6.02 6.37 6.73 7.52 8.41

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.

Alternative Bank Scenario

IPM projects electricity system operations and costs with perfect foresight, which means that there is certainty of knowledge of all future market outcomes, including allowance prices and the use of the private bank. In other words, IPM calculates when and whether it is cost-effective to make on-system emissions reductions at affected sources or to use allowances from the private bank. However, market participants may make decisions related to use of banked allowances for compliance on a shorter time horizon than projected by IPM using perfect foresight (i.e., due to uncertainty, market participants may be more likely to defer emissions reductions and rely more heavily on banked allowances in the short-term). In order to assess the use of the private bank during the short-term, an alternative usage scenario ("Alt Bank") was examined. Under the Alt Bank scenario, it is assumed that the marketplace would use the private bank of allowances at a rate roughly 40 percent faster than under the Program Case during the 2014-2017 timeframe. This scenario is not intended to be a prediction of market behavior; rather it is intended to provide a broader sense of potential market outcomes.

CO2 emissions from New York generators are projected in the Alt Bank scenario to be 4.4 million tons (10.7 percent) lower in 2020 than Reference Case. The generators are assumed to use more of the private bank by 2017 under this scenario, therefore less allowances will be available for use in later years and more emissions reductions will occur during this timeframe. Emissions from affected sources across the RGGI region are estimated to be 81.6 million tons in 2020 under the Alt Bank scenario while they are projected to be 87.8 million tons under the Program Case.

This emissions data IPM Alt Bank Case model runs and the table displayed below:

91 Alt Bank CO2 Emissions [Million Tons] 2012 2013 2014 2015 2016 2018 2020
MA 17 15 16 15 13 14 15
CT 6 7 7 7 7 7 7
ME 3 3 4 4 4 3 3
NH 2 3 2 2 2 2 2
RI 3 4 4 4 4 4 4
VT 0 0 0 0 0 0 0
NY 32 35 34 34 36 36 37
DE 4 3 4 4 4 4 3
MD 25 27 26 25 23 15 14
Total RGGI 94 96 96 95 93 85 84
Total Emissions at Affected Plants 92 93 94 92 90 82 82
Eastern Interconnect without RGGI 1,514 1,548 1,598 1,610 1,578 1,617 1,665
Total Eastern Interconnect 1,608 1,643 1,694 1,705 1,671 1,702 1,750
Total Canadian 102 97 95 97 100 102 105

CO2 allowance prices under the Alt Bank scenario are projected to increase from approximately $3.60/ton (2010 dollars) in 2014 to about $6.57/ton in 2016 and about $10.21/ton in 2020. Prices are lower in the short-term under the Alt Bank scenario than under the Program Case because the former scenario assumes that more allowances from the private bank are being used for compliance in the short term. Similarly, prices are higher in 2020 under the Alt Bank scenario because the marketplace has fewer allowances left over in the private bank relative to the Reference Case, and therefore more on-system emissions reductions are required from compliance entities. In addition, it is estimated that approximately 10 million allowances would be obtained by the marketplace between 2014 and 2020 from the CCR. The acquisition of these additional allowances provides some price dampening which is reflected in these estimated allowance prices.

This allowance price data was based on IPM Alt Bank Case model runs and the table displayed below:

Alt Bank Allowance Prices (2010$) 2012 2013 2014 2015 2016 2018 2020
NOx Regional ($/ton) 600 600 600 600 600 600 600
SO2 Regional Tier 1 ($/ton) - 6 6 7 - - -
SO2 Regional Tier 2 ($/ton) - 21 22 23 - - -
Regional CO2 ($/ton) 1.86 1.86 3.60 5.14 6.57 8.00 10.21

Under the Alt Bank scenario, New York's wholesale electricity prices (including both energy and capacity costs) are projected to be $1.62/MWh higher in 2016 and $2.72/MWh higher in 2020, than the Reference Case. Wholesale electricity prices are estimated to increase by about 2.9 percent in 2016 and 4.9 percent in 2020 under the Alt Bank scenario relative to the Reference Case.

Sensitivity analyses were performed to develop bounds or collars around the Reference Case and Program Case projections. First, a Higher Emissions scenario that assumes higher natural gas prices and higher regional energy demand was evaluated. This scenario used natural gas prices from the Low Estimated Ultimate Recovery scenario in EIA's 2012 Annual Energy Outlook where Henry Hub natural gas prices are estimated to be $5.31/MMBtu in 2020. Demand in this case is assumed to be about three percent higher in the near-term and four percent higher in the longer-term than the Reference Case. Likewise, a Lower Emissions scenario was also developed that assumes lower natural gas prices, lower regional energy demand, and the continued operation of the Indian Point nuclear power plants through the timeframe of the study. This scenario used natural gas prices from the High Technically Recoverable Resources scenario in EIA's 2012 Annual Energy Outlook where Henry Hub natural gas prices are estimated to be $3.02/MMBtu in 2020. In this case, demand is assumed to be about three percent lower in the near-term and four percent lower in the longer-term than the Reference Case.

The modeling case that evaluated the potential impacts of the Updated Model Rule using the Higher Emissions assumptions was called the 91 Cap_Bank_Model Rule_High Case. Under this scenario, allowance prices are estimated to be $7.27/ton in 2014, $8.13/ton in 2016 and $10.15/ton in 2020. A sensitivity scenario was run to estimate the impacts of the Updated Model Rule with the Higher Emissions and Alt Bank assumptions. Under this 91 Cap Alt_Bank_Model_Rule_High Case, allowance prices are estimated to be about $4.62/ton in 2014, $$6.90/ton in 2016, and $16.44/ton in 2020.

In IPM, allowance prices would only be expected to rise above the minimum reserve price if the projected cumulative emissions over the time period exceed the cumulative cap level. When evaluating the impact of the Updated Model Rule using the Low Emissions scenario, emissions over the time period are projected to be 50 million tons less than the number of allowances available to the market (adjusted cap plus the emissions bank). Therefore, affected sources would not need to make any emission reductions and it is estimated that allowance prices would be at the minimum reserve price under this scenario. This scenario was not actually modeled; however, ICF staff provided the assessment of the scenario described in this paragraph.

A macro-economic impact study of the Program was also conducted at the direction of the Participating States through NESCAUM to estimate the potential impact of the Program on the economies of Participating States. The study used the REMI computer model. As mentioned above, 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. For example, the cumulative changes in New York's Gross State Product and Personal Income associated with the proposed revisions to the Program will be about $5.8 billion and $4.7 billion, respectively (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). The cumulative change in employment in New York associated with the Program will be about 80,500 job-years over the period 2012 to 2040. A job-year is equivalent to one person employed for one year.

Costs to State and Local Governments

In addition to the costs identified for regulated parties and the public, State and local governments will incur costs. The Jamestown Board of Public Utilities (JBPU), a municipally owned utility, owns and operates the S.A. Carlson Generating Station (SACGS). Emissions monitoring at SACGS currently meets the monitoring provisions of the Program, and no additional monitoring costs will be incurred under the proposed revisions to the Program. Notwithstanding this, just like any other owner or operator of any source subject to the 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 to comply with the Program and assumed that the costs of allowances will be between $6.00 in 2014 and $9.00 in 2020 (in 2010 $) per ton for CO2 under the Program Case. To estimate total costs for SACGS under the Program, the Department reviewed 2009 through 2012 emissions from Jamestown's affected unit. During that time period, Jamestown's emissions ranged from a low of 4,261 tons to a high of 117,311 tons. An estimate of compliance costs, based on these emissions values, indicates that purchasing allowances to cover emissions will result in estimated costs between a low of $25,600 and a potential high of $1 million annually. These costs will eventually be passed on to the consumers of electricity from the JBPU.

The JBPU has a range of compliance options and can utilize the flexibility inherent under the Program to comply. Since the 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 Program revisions include an Interim Control Period,42 that will 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.

Department Costs

The Department will continue to incur staff costs associated with the implementation of the revised Program, including staff resources to review monitoring plans submitted by generators and to analyze data submitted to EPA to determine emissions and compliance obligations. Specifically, the Department requires sufficient staff to: review and process set-aside and offset applications; submit set-aside award requests for execution; modify permits and inspect generator facilities, including the continuous emission monitors; and analyze the Program's effectiveness. It should be noted, that the Department's costs are expected to remain unchanged as a result of the Program revisions.

NYSERDA will also continue to incur costs to administer and evaluate the use of auction proceeds from the Program and it will continue to convene an Advisory Group to provide guidance on how to best use auction proceeds and to assist with the development of the Operating Plan. The Plan is reviewed and revised on an annual basis by NYSERDA and an Advisory Group includes: 1) program selection criteria; 2) an anticipated schedule for implementation of the programs; 3) descriptions of the measurement, verification, and evaluation methods that will be used to judge the impacts and success of the programs; and 4) a quantification of NYSERDA's costs for administration and evaluation of the programs. It should be noted, that NYSERDA's administrative and evaluation rates are not expected to change 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.

Local Government Mandates

This is not a mandate on local governments. The revised Program will continue to apply equally to any entity that owns or operates a subject source. Local governments have no additional compliance obligations as compared to other entities subject to the revised Program. The JBPU, a municipally owned public utility, owns and operates the SACGS. JBPU contains one combined cycle turbine at the SACGS that is currently subject to the Program and will remain subject to the revised Program; no other additional record keeping, reporting, or other requirements will be imposed on local governments.

Paperwork

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 10 years from the date the document is created:

  1. Account certificate of representation form;
  2. Emissions monitoring information. CO2 budget sources are required to report emissions and allowance transfers via electronic means which will minimize the paperwork burden on sources;
  3. Copies of all reports, compliance certifications, and other submissions and all records made or required under the program;
  4. Copies of all documents used to complete a permit application and any other submission under the program or to demonstrate compliance with the program;
  5. Copies of all documents used to complete a consistency application and monitoring and verification report to demonstrate compliance with the offset provisions of the program; and
  6. 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.

Duplication

The emissions monitoring and reporting requirements of the revised Program are unchanged from those of the existing Program, and are identical to those of the Title IV program and 6 NYCRR Parts 243, 244 and 245. Since these requirements are identical, monitoring and reporting done for the federal program can be used to comply with the monitoring and reporting requirements of the revised Program.

Alternatives

Alternatives Considered

No Action Alternative

The No Action alternative would leave the current Program in place and the Program cap and flexibility provisions within it would remain unchanged. During program review, the Department, along with DPS and NYSERDA, participated in a rigorous and comprehensive regional evaluation of the Program supported by an extensive regional stakeholder process that engaged the regulated community, environmental nonprofits, consumer and industry advocates, and other interested stakeholders. Through this process, which started in late 2010, the Department sought to ensure RGGI's continued success - effectively reducing CO2 emissions while providing benefits to consumers and the State. Program review revealed:

  • A significant excess supply of allowances relative to actual emission levels in the region, and
  • The current cost control measures in the program, which are based upon expansion of the percentage of offset allowances allowable for compliance, would likely be ineffective in controlling costs if the emissions cap was made binding.

The excess supply of allowances or over-allocation was the result of a number of factors. As highlighted in a Draft White Paper prepared by NYSERDA,43 a number of factors contributed to the observed decrease of CO2 emissions from the RGGI region electricity sector from 2005 to 2009. The Draft White Paper identified three primary drivers of the decrease: 1) lower electricity load (due to weather; energy efficiency programs and customer-sited generation; and the economy); 2) fuel-switching from petroleum and coal to natural gas (due to relatively low natural gas prices); and 3) changes in available capacity mix (due to increased nuclear capacity availability and uprates; reduced available coal capacity; increased wind capacity; and increased use of hydro capacity).

Since the intent of the Program was and is to reduce CO2 emissions from the electricity sector, the proposed revision to the Program recognize that over allocation of allowances reduces the effectiveness of the cap and minimizes the impact of the Program in achieving meaningful emission reductions. "Over allocation is a problem for program success and, in the design of future programs, designers should take precautions to avoid it. The environmental effectiveness of cap-and-trade regulation will really only be proven when programs create truly constrained allowance markets that force the maximally feasible emissions reductions that our environmental laws have so often required.44 " Since the No Action alternative would leave the Program unchanged and would not address the issue of over allocation, it was not selected.

Modeling Different Cap Alternatives

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. In order to determine the difference in the Program's impact under various scenarios and to support program review, the Participating States conducted REMI macroeconomic modeling, customer electricity bill analysis, and revised electricity sector modeling using the IPM. Comprehensive electricity sector modeling and economic analysis was considered to support evaluation of potential modifications to the Program. The most critical of these evaluations was the assessment of different cap levels to address over allocation of allowances. As discussed above, over allocation was influenced by a number of factors and was perhaps the most important issue addressed during program review.

First, different cap levels were assessed using the IPM model to determine their effectiveness in achieving emission reductions under the Program. CO2 cap trajectories of 120 million tons, 115 million tons and 106 million tons were assessed starting in 2014. In each case, the cap declines from those levels at 2.5 percent per year through the modeled time horizon, or 2020. When the IPM Reference Case was updated in August 2012, projected emissions were significantly lower than previous modeling. Cumulatively, emissions dropped about 17 percent from the previous reference case and emissions at RGGI affected sources were projected to be only 91 million tons in 2012. Based on this updated information, an analysis of the March 2012 potential cap scenarios demonstrated that: the 115 and 120 cap levels and assumptions would result in prices remaining at the minimum reserve price; cumulatively, allowances would exceed emissions because emissions had fallen so significantly; the 106 cap level analysis indicated a need to address the projected private bank of allowances carried into 2014 and beyond. As a result of this, new modeling scenarios relative to the updated reference case of 106, 101, 97 and 91 million tons, with an adjustment for banked allowances, were subsequently evaluated.

Based on a review of all modeling iterations and after careful consideration, New York and the Participating States decided to propose to lower the regional CO2 emissions cap to align the cap with current emissions levels, while accounting for allowances held by market participants in excess of the quantity needed to demonstrate compliance. Accordingly, New York and the Participating States selected and proposed a regional emissions cap in 2014 equal to 91 million tons declining 2.5 percent each year from 2015 through 2020.

The bank of allowances held by market participants is addressed with two interim adjustments for banked allowances. The first adjustment will be made over a seven-year period (2014-2020) for the first control period private bank of allowances and a second adjustment will be made over a six-year period (2015-2020) for the 2012 and 2013 private bank of allowances. These adjustments are necessary in order to account for the existing private bank of CO2 emissions allowances already acquired at auction, and in order to help create a binding cap.

CCR, CCR Levels and Program Flexibility Alternatives

Flexibility provided under the Program maintains environmental integrity and provides compliance alternatives for regulated sources. As described above, compliance flexibility is inherent under a cap-and-trade program as compared to traditional command-and-control regulation. Under the existing Program, additional flexibility was provided through the expansion of allowable offset usage, the addition of international offsets and an extension of the compliance period. 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, which is a reserved quantity of allowances, in addition to the cap, that would only be available if defined allowance price triggers are exceeded. The CCR was chosen because the no action alternative of retaining the existing flexibility provisions would not have provided measurable cost control in an efficient, transparent and predictable manner.

During program review, the following two sets of price triggers were modeled with an annual CCR limit of 10 million allowances: (1) $5.00 in 2014, $7.00 from 2015 to 2017 and $10.00 from 2018 through 2020; and (2) $4.00 in 2014, $6.00 in 2015, $8.00 in 2016 and $10.00 from 2017 through 2020. The CCR allowances would be made available immediately in any auction in which demand for allowances at prices above the CCR trigger price exceeded the supply of allowances offered for sale in that auction prior to the addition of any CCR allowances. If the CCR is triggered, the CCR allowances will only be sold at or above the CCR trigger price. After careful consideration of these alternatives, the Department determined that the CCR will be equal to five million short tons in 2014 and 10 million short tons each year thereafter, and the CCR trigger prices will be $4.00 in 2014, $6.00 in 2015, $8.00 in 2016, and $10.00 in 2017. Each year after 2017, the CCR trigger price will increase by 2.5 percent.

In addition to the CCR, the existing flexibility provisions were reviewed. The proposed Program revisions retain the allowable offset usage percentage at 3.3 percent, and delete the existing offset price triggers that raise the allowable percentage of offsets and that allow the use of international CO2 emission credit retirements. 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.

Federal Standards

In December 2009, EPA issued findings concluding that current and projected concentrations of GHGs in the atmosphere endanger the public health and welfare of current and future generations (the Endangerment Finding).45 Following the Endangerment Finding, EPA has taken numerous additional actions under the Clean Air Act (Act) regarding the regulation of GHG emissions. As a result of these actions, according to EPA, GHGs became "subject to regulation" under the Act as of January 2, 2011. EPA promulgated a rule to tailor the major source applicability thresholds for GHG emissions for purposes of the Prevention of Significant Deterioration (PSD) and Title V programs under the Act (the "GHG Tailoring Rule"),46 which the Department subsequently incorporated in its 6 NYCRR Parts 200, 201, and 231. PSD provisions establish preconstruction permitting requirements for new major stationary sources and major modifications at existing stationary sources. Most notably, PSD includes the requirement that applicable sources are subject to Best Available Control Technology (BACT) for GHGs.

EPA is currently committed, pursuant to a litigation settlement, to propose new source performance standards (NSPS) under section 111 of the Act for GHG emissions from power plants. This would include an NSPS for new sources pursuant to section 111(b) of the Act, as well as emission guidelines for required state regulation of GHG emissions from existing power plants under section 111(d) of the Act. In March 2012, EPA proposed a GHG NSPS for new power plants under section 111(b) of the Act. EPA has not finalized this proposal, nor has it proposed any emissions guidelines for existing sources under section 111(d) of the Act. GHG NSPS for new or existing sources would likely apply to sources that are subject to the Program. The Department will continue to monitor the development of power plant GHG NSPS for both new and existing sources by EPA. If EPA ultimately adopts a GHG NSPS for new or existing sources, the Department will consider any necessary or appropriate action regarding the Program.

While stationary sources may be subject to Title V and PSD permitting requirements for GHGs under the Act, provided they meet or exceed the relevant applicability thresholds established by the GHG Tailoring Rule, there are currently no specific CO2 emission standards for stationary sources in the federal regulations. In addition, PSD covers only new or modified sources. 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. As explained above, the proposed revisions to the Program - including most notably the proposed reduction in the CO2 emission cap - help to further this objective. Although national and international action is needed, the efforts undertaken by New York and the Participating States as part of revising the RGGI program will slow the rate and magnitude of climate change thereby reducing the risk of injury to the State and its citizens.

As an environmental leader, New York has participated in efforts to develop national emissions reduction programs for CO2. The Department recognizes the benefits of a national program and will continue to participate on national and regional initiatives to encourage the development of such programs. In the event that a national market based trading program is developed, it will be rigorously reviewed for consistency with and timing of the Program.

Compliance Schedule

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. Moreover, pursuant to the proposed revisions, the second control period under the Program will remain from 2012-2014, with a CO2 allowance transfer deadline of March 1, 2015. The revised Program will require affected sources and units to comply with the emission limitations of the Program beginning in 2014.

The proposed revisions to the Program create a modified compliance schedule called interim compliance periods which are defined as each of the first two years of a three-year control period. The first interim control period under the revised Program will be the year 2015. Accordingly, at the end of each control period, the owners and operators of each source subject to the 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 the total tons of CO2 emissions for the control period less the CO2 allowances deducted for the previous two interim control periods. In the first two calendar years of each three year control period (interim control period), the owners and operators of each source subject to the 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 was subject to the control period requirement starting on the later of January 1, 2009 or the date the unit commences operation. 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.

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

__________

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 2012.01http://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 RGGI, Inc. is a 501(c)(3) non-profit corporation created to provide technical and administrative services to the Participating States.
5 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.
6 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/.
7 IPCC WGI Fourth Assessment Report, Climate Change 2007: The Physical Science Basis, February 2007, and available at: http://www.ipcc.ch.
8 American Meteorological Society (AMS). Climate Change. An Information Statement of the American Meteorological Society. Adopted by AMS Council 20 August 2012.
9 Hansen, J., Sato, M., Ruedy, R. 2012. 'Perception of climate change'. Proceedings from the National Academy of Sciences. www.pnas.org/cgi/doi/10.1073/pnas.1205276109. This study found that during the period from 1951-1980, extremely hot summers covered just 1 percent of Earth's land area. This had risen to 10 percent of the Earth's land area by the period from 1981-2010, and even higher during the 2006-2010 period. Based upon statistical analysis of global summertime temperatures, the authors concluded with a high degree of confidence, "extreme anomalies were a consequence of global warming because their likelihood in the absence of global warming was exceedingly small."
10 Joint Science Academies' Statement: Global Response to Climate Change, issued June 7, 2005, and available at http://www.nationalacademies.org/onpi/06072005.pdf.
11 The National Academy of Sciences. Committee on America's Climate Choices, Board on Atmospheric Sciences and Climate Division on Earth and Life Studies, National Research Council. 'America's Climate Choices Final Report'. 2011. http://americasclimatechoices.org/.
12 Rosenzweig, C., W. Solecki, A. DeGaetano, M. O'Grady, S. Hassol, P. Grabhorn (Eds.) 2011. '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
13 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/
14 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
15 Rosenzweig, 'op.cit.'
16 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.
17 "New York State Sea Level Rise Task Force Report to the Legislature," December 31, 2010. http://www.dec.ny.gov/docs/administration_pdf/slrtffinalrep.pdf. The 2013 New York City Panel on Climate Change (NPCC) Climate Risk Information Report provides updated sea-level rise projections. Using the latest models and information, the NPCC projects even greater sea level rise in the New York City area. http://www.nyc.gov/html/planyc2030/downloads/pdf/npcc_climate_risk_information_2013_report.pdf
18 Rosenzweig, 'op.cit.'
19 "Patterns and Trends New York State Energy Profiles: 1996-2010," Final Report, April 2012.01http://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
20 Copenhagen Accord to the United Nations Framework Convention on Climate Change, Copenhagen Climate change Conference, December, 2009 http://unfccc.int/documentation/documents/advanced_search/items/6911.php?priref=600005735#beg
21 Hibbard, P., Tierney, S., Okie, A., Darling, P. 'The Economic Impacts of the Regional Greenhouse Gas Initiative on Ten Northeast and Mid-Atlantic States (Review of the Use of RGGI Auction Proceeds from the First Three-Year Compliance Period)'. Analysis Group. November 15, 2011. http://www.analysisgroup.com/uploadedFiles/Publishing/Articles/Economic_Impact_RGGI_Report.pdf
22 http://www.env-ne.org/public/resources/pdf/ENE_RGGI_Macroeconomic_Benefits_110915.pdf
23 http://www.synapse-energy.com/Downloads/SynapseReport.2012-02.RAP.RGGI-Energy-Efficiency-Benefits.10-027A.pdf
24 http://theenergycollective.com/wurzelmann/59328/rggi-s-benefits-costs-and-why-it-should-stay
25 http://www.eany.org/images/Reports/rggi_success_apr2012.pdf
26 New York State Energy and Research Development Authority (NYSERDA). 'Operating Plan for Investments in New York under the CO2 Budget Trading Program and the CO2 Allowance Auction Program'. NYSERDA. November 2012. http://www.nyserda.ny.gov/Energy-and-the-Environment/Regional-Greenhouse-Gas-Initiative/Auction-Proceeds.aspx
27 "REMI Economic Impacts Analysis," by the Northeast States for Coordinated Air Use Management (NESCAUM), June 3, 2013.http://www.rggi.org/docs/ProgramReview/REMI%2091%20Cap%20Bank%20MR_2013_06_03.pdf
28 New York State Energy and Research Authority, "New Yorks RGGI-Funded Programs Status Report," Quarter Ending December 31, 2012. http://www.nyserda.ny.gov/Energy-and-the-Environment/Regional-Greenhouse-Gas-Initiative/Evaluations-of-Funds.aspx
29 WRI White Paper: Greenhouse Gas Emissions Trading in the U.S. States: Observations and Lessons from the OTC NOx Budget Program, A. Aulisi, A.E. Farrell, J. Pershing, S. VanDeveer. 2005.
30 http://rggi.org/docs/Elec_monitoring_report_11_09_14.pdf
31 http://rggi.org/docs/Market/Elec_Monitoring_Report_12_07_30_Final.pdf
32 An Empirical Test for Inter-State Carbon-Dioxide Emissions Leakage Resulting from the Regional Greenhouse Gas Initiative, April 20, 2011. http://www.nyiso.com/public/webdocs/media_room/publications_presentations/Other_Reports/Other_Reports/ARCHIVE/Report_on_Empirical_Test_for_Interstate_CO2_Emissions_Leakage_04202011_FINAL.pdf
33 The Eastern Interconnection (EI) includes the eastern two-thirds of the continental United States (excluding most of Texas and Florida). The Canadian portion includes Ontario east to the Maritime Provinces.
34 CASE 07-M-0548 - Order Establishing Energy Efficiency Portfolio Standard and Approving Programs. (June 23, 2008) http://www3.dps.ny.gov/W/PSCWeb.nsf/ArticlesByTitle/06F2FEE55575BD8A852576E4006F9AF7?OpenDocument
35 The Program is designed to allocate most of the CO2 allowances to the EE&CET Account (the "EE & CET Allocation"). The EE & CET Allocation is administered by NYSERDA, which currently administers similar energy efficiency and clean energy technology programs, and allowances in the account are sold in transparent allowance auctions. This allocation achieves the emissions reduction goals of the Program and reduces impacts on consumers by promoting or rewarding investments in energy efficiency, renewable or non-carbon-emitting technologies, innovative carbon emissions abatement technologies with significant carbon reduction potential, and/or the administration of the Program.
36 See discussion of Cost Containment Reserve provision on page 28.
37 "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
38 "IPM Potential Scenario Customer Bill Analysis," by the Analysis Group, dated May 24, 2013. http://www.dec.ny.gov/docs/administration_pdf/custbillanaly2013.pdf
39 The modeling assumptions document and the tabular results for each modeling run are located at http://www.rggi.org/design/program_review
40 See discussion of the Interim Adjustment provisions on page 28.
41 See discussion of Cost Containment Reserve provisions on page 28.
42 See discussion of Interim Control Period provision on page 29.
43 Relative Effects of Various Factors on RGGI Electricity Sector CO2 Emissions: 2009 Compared to 2005, Draft White Paper, November 2, 2010. http://rggi.org/docs/Retrospective_Analysis_Draft_White_Paper.pdf
44 The Overallocation Problem In Cap-And-Trade: Moving Toward Stringency, Lesley K. McAllister, 2009. http://www.columbiaenvironmentallaw.org/assets/pdfs/34.2/7._McAllister_34.2.pdf
45 Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 FR 66496, December 15, 2009.
46 Prevention of Significant Deterioration and Title V Greenhouse Gas Tailoring Rule, 75 FR 31514, June 3, 2010.


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