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Job Impact Statement Proposed Part 242

Nature of Impact

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) proposes to revise 6 NYCRR Part 242, CO2 Budget Trading Program (Part 242 or the Program) and 6 NYCRR Part 200, General Provisions.

The Department, New York State Energy Research Development Authority (NYSERDA) and the New York State Department of Public Service (DPS) analyzed costs, including impacts to jobs, total Gross State Product and total Personal Income, associated with compliance with the proposed revisions to Part 242. As discussed below, this analysis concludes that the proposed revisions to the Program will not have an adverse impact on jobs and employment opportunities in New York. At the direction of New York and Participating States, Northeast States Coordinated Air Use Management (NESCAUM) conducted a macroeconomic impact study called "Regional Economic Models, Inc. Policy InsightTM (REMI). 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 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 $2.1 billion and $1.2 billion, respectively (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). The cumulative change in employment in New York associated with the Program will be about 23,234 job-years over the period 2017 to 2031. A job-year is equivalent to one person employed for one year.

The proposed 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 proposed Program revisions provide a budget adjustment. 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 proposed revisions to Part 242 also retain the Cost Containment Reserve (CCR), which helps provide additional flexibility and cost containment for the Program. While the proposed 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/ton 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 cap of additional CCR allowances will be available for purchase at auction if the CCR trigger price is reached.

The proposed Program revisions create an Emissions Containment Reserve (ECR), which will also help secure additional emissions reductions if prices fall below established ECR trigger prices. The ECR will only be triggered, and allowances withheld from auctions, if CO2 emission reduction costs are lower than projected. The states implementing the ECR will withhold up to 10 percent of their respective 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.

The proposed model rule revisions eliminated two offset categories, the "SF6 Offset Category" and the "End-Use Energy Efficiency Offsets Category". The proposed model rule revisions also updated and retained three offset categories that some states may continue to implement. While an individual state may choose to retain no, some, or all three eligible offset project categories, any offset allowances awarded by an individual state would remain fully fungible across all the participating states for compliance purposes. In the revisions to Part 242, New York is proposing to only retain the offset provisions for avoided methane emissions from agricultural manure management operations.

Finally, the proposed 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 proposed 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.

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 proposing to expand 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.

The nature of the proposed Program revisions, generally described above and discussed more thoroughly in the accompanying Regulatory Impact Statement, is such that they clearly will not have an adverse impact on jobs and employment opportunities.

Categories and Numbers Affected

As indicated above, the Department, NYSERDA and DPS analyzed costs, including impacts to jobs, total Gross State Product and total Personal Income, associated with compliance with the proposed revisions to Part 242. 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 Independent Systems Operator.

To evaluate potential cost impacts of the reduced CO2 emissions cap and budget adjustments, Integrated Planning Model (IPM®)3 modeling conducted by ICF International (ICF) was used to compare a future case with the proposed Program revisions (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 proposed revisions were not implemented. The modeling assumptions and input data were developed with input from 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 proposed Program revisions. For a greater explanation of NYSERDA's analysis and a summary of the IPM® modeling conducted by (ICF, see Regulatory Impact Statement pages 53-72.

Utilizing New York's Investments of RGGI Allowance Proceeds and output data from IPM®, the REMI macroeconomic study estimates that the impact of the reduced CO2 emissions cap, budget adjustments and the remainder of the proposed Program revisions on jobs, the economy and electricity customer bills4,5 in New York will be very small and generally positive. The REMI study estimates the cumulative change in employment in New York associated with the Program revisions will be about 23,234 job-years over the period 2017 to 2031. A job-year is equivalent to one person employed for one year.

Further, the REMI 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 $2.1 billion and $1.2 billion, respectively (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).

Regions of Adverse Impact

A Statewide analysis of the impacts of these revisions on electricity prices in New York State was performed. Under the Model Rule Policy Case, New York's wholesale electricity prices (including both energy and capacity costs) are projected to be $1.29/MWh (2015 dollars) higher in 2031 than the Reference Case, a three percent increase. While wholesale electricity prices are projected to increase, the energy savings realized as a result of New York's application of 35 percent of proceeds to energy efficiency projects offsets that increase and results in projected decreases in bills over time. For a typical New York residential customer (using 530 kWh per month), the projected increase in wholesale electricity prices in 2031 translates into a monthly retail bill decrease of about 0.4 percent or a $0.36 savings. In 2020, the projected increase in wholesale electricity prices translates into a monthly residential retail bill increase of about 0.1 percent or $0.05. For commercial customers, the projected retail price impact of RGGI is about 0.0 percent in 2016 and -1.3 percent in 2031 (-$0.13 and -$5.93 per month, respectively). For industrial customers, the projected retail price impact of RGGI is about -0.7 percent in 2020 and -5.7 percent in 2031.

Minimizing Adverse Impact

The Department will implement the proposed 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 large stationary sources. The regulatory flexibility inherent in a cap-and-invest program, as well as the 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, while minimizing any potential adverse employment impacts.

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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. Additional states, including Pennsylvania and Virginia, have expressed interest in potentially becoming RGGI Participating States.
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


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