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Revised Rural Area Flexibility Analysis Part 242

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative, historic effort among New York and nine 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 approximately 75 million tons in 2021, declining 3.0 percent a year through 2030.2 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) revised 6 NYCRR Part 242, CO2 Budget Trading Program (the Program) and 6 NYCRR Part 200, General Provisions.

The promulgation of the revisions to Part 242 and the amendments to Part 200 will apply equally to affected sources statewide; rural areas will not be disproportionately impacted. The Department will implement the Program revisions through a cap-and-invest program because allowance-based cap-and-invest systems are a cost-effective means for implementing emission reductions from stationary sources.

The regulatory flexibility inherent in a cap-and-investment program, as well as the flexibility provided under the revisions to the Program, including the Cost Containment Reserve (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, while minimizing any potential adverse impacts of the revised Program on a statewide basis.

The Program Revisions

The Program revisions, which will cap regional CO2 emissions at approximately 75 million tons annually beginning in 2021, represent a nearly 30 percent reduction in the regional cap for the period 2020-2030. After 2021, the cap will decline by 2.275 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 Program revisions provide a budget adjustment for banked allowed. The Third Adjustment for Banked Allowances will adjust the budget for 100 percent of the pre-2021 vintage allowances held by market participants as of the end of 2020 that are in excess of the total quantity of 2018, 2019 and 2020 emissions. The third adjustment would be implemented over the five-year period of 2021-2025, after the size of the 2020 vintage private bank is determined.

The Program revisions retain the CCR, which helps provide additional flexibility and cost containment for the Program. While the revisions to the Program retain the CCR, the revisions would modify the CCR trigger price and the maximum amount of CCR allowances available at auction each year. In particular, the CCR allowances will be triggered and released at auctions at $10.77 in 2020 and will increase to $13.00 starting in 2021. Each year after 2021, the CCR trigger price will increase by seven percent. If the trigger price is reached, up to 10 million additional CCR allowances will be available for purchase at auction in 2020. Beginning in 2021, up to 10 percent of the regional base budgets of additional CCR allowances will be available for purchase at auction if the CCR trigger is reached.

The Program revisions create an Emissions Containment Reserve (ECR), which will also help secure additional emissions reductions if prices fall below established trigger prices. The ECR will only be triggered and allowances will be withheld from auctions if reduction costs are lower than projected. The states implementing the ECR will withhold up to 10 percent of their annual base budgets per year. The ECR trigger price will start at $6.00 in 2021 and will increase by seven percent each year thereafter.

New York stakeholders raised concerns during our extensive outreach effort, that the cost of RGGI might result in increased operation at units not subject to the regulatory provisions of Part 242. To address this concern, New York is also expanding applicability under Part 242 to capture certain units that serve an electricity generator with a nameplate capacity equal to or greater than 15 megawatts (MW). This applicability expansion will apply to any unit 15 MW or greater that resides at an existing CO2 budget source, and to any 15 MW unit that resides at a facility where there are two or more units with a nameplate capacity of 15 MW or larger.

Finally, the Program revisions will retain the interim compliance obligation. In addition to demonstrating full compliance at the end of each three-year compliance period, regulated entities will continue to have to 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 Program revisions also include minor revisions and updates to all references. The majority of the proceeds from the sale of New York's allowances will continue to be dedicated to strategic energy or consumer benefits, such as energy efficiency and clean energy technologies.

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

Types and Numbers of Rural Areas Affected

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

Compliance Requirements

The Program revisions include an expansion of the applicability provisions of the current Program. The revised Program will require affected sources already subject to the Program to continue to comply. Units newly subject to the Program under the expansion to certain units 15 MW and larger will be subject to the Program for compliance purposes beginning in 2021. The Program revisions retain the interim compliance obligation. Units 15 MW and larger that are subject to the Program will be subject to both the interim control period and control period requirements on the later of January 1, 2021 or the date the unit commences operation.

Costs

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

To evaluate the potential cost impacts of the reduced CO2 emissions cap and budget adjustments, Integrated Planning Model (IPM®3) was used to compare a future case with the Program (Program Case) to a Reference Case (Business as Usual scenario) to project how the regional electricity system would function if the Program remained unchanged and if the revisions were not implemented. The modeling assumptions and input data were developed through a stakeholder process, including representatives from the electricity generation sector, business and industry, environmental advocates and consumer interest groups. Subsequently, modeling results were presented to stakeholders for review and comment throughout the development of the Program revisions. For a greater explanation of NYSERDA's analysis and a summary of the (IPM®) modeling conducted by ICF International (ICF), see Regulatory Impact Statement pages 53-72.

A macroeconomic study of the Program was conducted to estimate the potential impact of the reduced CO2 emissions cap, budget adjustments and the remainder of the Program revisions on the economies of the Participating States. The study, using the REMI computer model, concluded that the impacts on the jobs, the economy and customer bills4,5 in New York would be generally positive, albeit relatively small. The estimated cumulative, positive change in employment in New York associated with the Program revisions will be about 23,234 additional job-years over the period 2017 to 2031. A job-year is equivalent to one person employed for one year. Further, the study estimates that the cumulative changes in New York's Gross State Product and Personal Income associated with the Program revisions will be approximately $2.1 billion and $1.2 billion, respectively.6 Although these cumulative changes are minimal, they represent positive impacts for total State employment, total Gross State Product and total Personal Income.

Minimizing Adverse Impact

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

Rural Area Participation

The Department complied with Sections 202-a, 202-b and 202-bb of the State Administrative Procedures Act through an extensive Regional program review process that included public participation by all Participating States. New York coordinated an additional stakeholder process to gather input from the public within its borders. New York and the Participating States had committed to a comprehensive program review during the initial development of RGGI and agreed to evaluate: program success; program impacts; additional emissions reductions; imports and emissions leakage; and offsets.

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 stakeholder meetings and sent list-serve notices to New York stakeholders announcing regional meetings and webinars. The input provided by stakeholders during the in-state process have been considered and incorporated by the Department in developing the revisions to the Program.

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1 In addition to New York, the RGGI Participating States include: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, Rhode Island, and Vermont. Pennsylvania has expressed interest in potentially becoming a RGGI Participating State, while Virginia recently finalized its own regulation so that it will become a RGGI Participating State as of January 1, 2021.
2 The Participating States released the Updated Model Rule on August 23, 2017.
3 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.
4 "RGGI Program Review: REMI modeling Results, Inputs and Draft Results from MRPS Case Run," by ICF, December 2017. https://www.rggi.org/sites/default/files/Uploads/Program-Review/12-19-2017/REMI_2017_12_19.pdf
5 https://www.rggi.org/sites/default/files/Uploads/Program-Review/9-25-2017/Customer_Bills_Results_Overview_09_25_17.pdf
6 This is provided in 2015 dollars, calculated as the present value of estimated annual changes over the period 2017 to 2031, discounted at three percent per year to account for the time-value of money.


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