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Regulatory Impact Statement Proposed Part 242

Introduction

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 then-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 approximately 75 million tons annually beginning in 2021, represent a nearly 30 percent additional 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, and to help create a binding cap, the proposed Program revisions provide a budget adjustment for banked allowances. 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 proposed 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 Program revisions 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 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 regionally 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 RGGI model rule revisions eliminated two offset categories, the "SF6 Offset Category" and the "End-Use Energy Efficiency Offsets Category". The 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 retain only the offset provisions for avoided methane emissions from agricultural manure management operations.

New York stakeholders raised concerns during the extensive outreach efforts that the cost of complying with RGGI might result in increased operation at units not subject to the regulatory provisions of Part 242, particularly at smaller units below the existing 25 megawatt (MW) applicability threshold. 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 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 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.

The proposed Program revisions are consistent with the State's overall efforts to reduce greenhouse gas (GHG) emissions, which cause climate change. The State has taken actions to reduce the use of fossil fuels used to generate electricity and to reduce GHG emissions through numerous policies and programs, including through its participation in RGGI. Furthermore, in line with the State's longstanding targets, the recently-enacted Climate Leadership and Community Protection Act (Climate Act)3 establishes Statewide GHG emission reduction requirements and renewable and clean energy generation targets. In particular, Environmental Conservation Law (ECL) Section 75-0107, which was added by the Climate Act, requires a 40 percent reduction in Statewide GHG emissions from 1990 levels by 2030, and an 85 percent reduction by 2050. Moreover, Public Service Law Section 66-p, which was also added by the Climate Act, establishes a target to generate 70 percent of the State's electricity from renewable energy sources by 2030, and to generate 100 percent of the State's electricity from carbon-free sources by 2040. The proposed revisions to the Program, including the additional reduction in the RGGI CO2 emissions cap and the establishment of the ECR, further the objectives of the Climate Act. Finally, the Climate Act also includes multiple provisions that recognize that historically disadvantaged communities often suffer disproportionate and inequitable impacts from climate change. The proposed revisions to the Program to expand its applicability to include certain smaller sources, many of which are located in such communities, are consistent with these provisions of the Climate Act.

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 confirms 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 an emissions containment reserve, and retain 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 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, including through programs such as RGGI. 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, the budget adjustments, and the establishment of the ECR 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-invest 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 further reduce the CO2 emissions cap, provide for budget adjustments, add an emissions containment reserve, and retain interim compliance obligations, the Department is further able to balance these competing interests. This includes through the cost-effectiveness inherent in a market-based program such as RGGI.

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. The RGGI program, including the proposed revisions to the Program, safeguards the air resources of the State and is consistent with the policy expressed in section 19-0103 as described above.

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 further reduce the CO2 emissions cap, to provide for the additional budget adjustments, to create the ECR, and to expand the applicability of the Program.

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-invest 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-invest program. In addition, based on stakeholder input, the department has identified additional sources of CO2 emissions that will become subject to RGGI under the proposed revisions to the Program. In particular, the applicability of the Program would be expanded 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 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-invest 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 (Act) or its implementing regulations. There is currently no CO2 stationary source cap-and-invest program established by the Act or its implementing regulations, although the U.S. Environmental Protection Agency (EPA) recently finalized the so-called Affordable Clean Energy (ACE) Rule4 which establishes emission guidelines for GHG emissions from existing power plants under Section 111(d) of the Act. Federal regulatory requirements governing sources of CO2 emissions are discussed further in the Federal Standards section of this RIS, found on page 72. The Federal Standards section also explains how the Program and the proposed revisions would meet criteria in Section 19-0303 (4), if this provision 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 70. 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 16.

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, including regulations promulgated thereunder, including the Program. These sections provide authority to the Department to create and retain the interim compliance obligation to better ensure compliance with the Program.

The Allowance Auction Program (21 NYCRR Part 507) will be revised by NYSERDA as part of this rulemaking. The statutory sections that grant NYSERDA authority to implement and revise the Allowance Auction Program, which are 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 continue to 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. These investments will continue to be designed to further the GHG emission reduction objectives of the Program.

The proposed Program revisions will retain the CCR which will help provide additional flexibility and cost containment. NYSERDA will ensure that the CCR allowances will be released at auctions if the CCR price is triggered. The CCR trigger price is $10.77 in 2020 and increases to $13.00 beginning 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, instead of the 10 million additional CCR allowances, the maximum amount of allowances available under the CCR will be reduced, so that up to 10 percent of the regional base budgets of additional CCR allowances will be available for purchase at auction if the CCR trigger price is reached. The proposed Program revisions will also create the ECR, which will help provide additional market stability and further CO2 emission reductions if emission reduction costs are lower than projected. NYSERDA will withhold up to 10 percent of New York's annual base budget per year if the ECR is triggered. The ECR trigger price will start at $6.00 in 2021 and will increase by seven percent each year thereafter.

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."

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, as well as to withhold ECR allowances if the ECR is triggered, 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 13 percent of all GHG emissions in the State.5 In 2018, New York power plants subject to the Program emitted approximately 27.3 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-invest 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.

Stakeholder Outreach

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. On November 20, 2012, after the completion of the first extensive and comprehensive RGGI Program Review, the RGGI Participating States proposed Program revisions to reduce the regional emissions cap to 91 million tons in 2014 and committed to reduce that level by 2.5 percent each year through 2020. Further, to account for the full bank of excess allowances at the end of 2014, additional cap adjustments were made over the course of the program from 2014 to 2019, and an additional adjustment will be made in 2020. The Department implemented these and other changes to the Program through a revision to Part 242 completed in 2013.

The Participating States initiated the most recent program review in the fall of 2015, with the announcement of the first stakeholder meeting and concluded the process in August 2017. The Participating States and RGGI Incorporated (RGGI, Inc.)6 conducted more than a dozen stakeholder meetings and webinars during this period, during which 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 model regulatory text, and was released to the stakeholders for comment on August 23, 2017. On December 19, 2017, 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 stakeholder meetings and sent list-serve notices to New York stakeholders announcing regional meetings and webinars. The input provided by stakeholders during both the regional and in-state processes have been considered and incorporated by the Department in developing the proposed revisions to the Program.

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, the ECR and the expansion of program applicability. 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 radiation 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 GHG emissions trap heat in our atmosphere, maintaining the average temperature of the planet approximately 60°F above what it would be otherwise. 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. CO2 has a very long residence time in the atmosphere and, thus, has a lasting effect on the climate. Average atmospheric CO2 concentrations exceeded 407 parts per million in 2018, which according to ice core data, is higher than at any point in the past 800,000 years and the rate of increase is 100 times faster than previous natural increases at the end of the last ice age.7

There is clear scientific consensus that anthropogenic emissions of CO2 are contributing to the observed warming of the planet as presented in the Fifth Assessment Report of the Intergovernmental Panel on Climate Change.8 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 Greenland and Antarctic ice sheets 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.9,10

In response to scientific projections of likely severe climate impacts of global average temperatures rise, the U.S. signed the1992 United Nations Convention on Climate Change. In 2016 the United States once again joined 197 countries in ratifying the Paris Climate Agreement, an enhancement to help the implementation of that Convention.

Impacts from Emissions Already Observed in New York's Climate

New York's climate has already begun to change, gradually taking on the characteristics of the climate formerly found in locations south of New York. The need for the reduction of CO2 emissions, including through the reduced emissions cap, budget adjustment, and establishment of the ECR, is clearly supported by numerous direct impacts that have been observed in New York State and presented in the 2011 New York State ClimAID assessment11 and the 2014 update to ClimAID.12

These include:

  • Temperature. Temperatures in New York State have risen during the twentieth century, with the greatest warming coming in recent decades - temperatures have risen on average 0.25°F per decade over the past century. This warming includes an increase in the number of extreme hot days (days at or above 90ºF) and a decrease in the number of cold days (days at or below 32ºF).
  • Sea level rise. Sea level in the coastal waters of New York State and up the Hudson River has been steadily rising over the twentieth 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 0.9 to 1.5 inches per decade.

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 as well as the budget adjustment and ECR, as outlined in the proposed revisions to the Program. The 2011 New York State ClimAid assessment and 2014 update also examined 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. ClimAID used regionalized climate projections to develop adaptation recommendations and is a climate change preparedness resource for planners, policymakers, and the public.13 The ClimAID assessment and update predicted the following:

  • Air temperatures. Air temperatures are expected to rise across New York, by 2.0°F to 3.4°F by the 2020s, 4.1F° to 6.8°F by the 2050s, and 5.3F° to 10.1°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 five percent by the 2020s, up to 12 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. The Department promulgated science-based projections of sea level rise based on the multiple scenarios identified in the 2014 ClimAID assessment. These projections identify the potential rise in sea level through 2100 in three coastal regions of the state.14
  • 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, budget adjustments, and ECR are further supported by the ClimAID assessment,15 which provides predictions regarding the effects climate change will have on specific resources and communities in New York State.

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, cause crop losses, property damage, 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. New York's public water supply may also be stressed by changes in temperature and precipitation.

Lake Erie and Lake Ontario are critical water resources to New York State, which would also be threatened by global climate change. New York relies on these Great Lakes for drinking water, hydroelectric power, commercial shipping, and recreation, including boating and fishing. New York State has approximately 331 miles of shoreline along Lake Ontario and approximately 77 miles along Lake Erie.16 Global climate change is likely to result in greater variability of Great Lake water levels. Commercial shipping on the lakes can be severely affected by both high and low water levels. Each one-inch loss in draft in the Great Lakes shipping channels causes the ships for inter-lake transportation to lose 270 tons of cargo capacity.17 The Chamber of Marine Commerce warned in 2019 that attempts to reduce high water levels by increasing flow rates in the St. Lawrence River could prevent safe anchoring and allow drifting of navigation buoys, costing approximately $1 billion in lost revenue in the U.S. and Canada.18

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.

New York's shoreline will also be adversely affected by climate change. New York has approximately 2,625 miles of coastline including barrier islands, coastal wetlands, and bays.19 The major contributor to sea level rise is thermal expansion and melting of glaciers and ice sheets. As noted above, New York has adopted official sea level rise projections based on the best available data. Accelerated sea level rise due to global climate change is expected to increase the frequency and magnitude of flood damage and storms. By the end of the 21st century, coastal flood levels currently associated with a 100-year flood could occur approximately four times as often under conservative sea level rise scenarios.20

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 cold-water 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. The loss of long cold winters could limit the productivity of apple and other tree crops that require long cold dormant periods. 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.

Agriculture and forests in New York will also be affected by global climate change. The majority of crops grown in New York may be able to withstand a warmer climate with the exception of cold weather crops, such as apples and potatoes, which would shift to the north or have reduced growing seasons. These shifts would eventually result in a different crop mix for New York's farmers. Potential change to the hydrologic cycle may also affect crop production. Dairy farmers will also be impacted since milk production is maximized under cooler conditions ranging from 41°F to 68°F.21 New York is the third largest producer of milk in the United States, behind California and Wisconsin, with 14.9 billion pounds of milk produced in 2017.22 During the unusually hot summer in 2005, many New York dairy herds reported declines in milk production of five to 15 pounds of milk per cow per day (an eight to 20 percent decrease).23 In 2017, New York reported approximately $2.7 billion dollars of cash receipts from its dairy industry.24 A loss of milk production efficiency from heat effects could result in the loss of hundreds of millions of dollars annually for New York's dairy industry.

New York State's Adirondack Park is the largest forested area east of the Mississippi and consists of six million acres, including 2.6 million acres of state-owned forest preserve.25 The Adirondack Park, one of the most significant hardwood ecosystems in the world, is also likely to be threatened by global climate change. Global climate change will affect the forest mix in New York, which could change from the current mixed forest to a temperate deciduous forest. Tree species are expected to lose significant area as suitable climate conditions shift northward. These changes will also further impact fish, birds and wildlife as the forest composition changes.

Global climate change will also negatively impact New York's maple syrup industry since specific temperature conditions are required in order for the sugar maples to produce sap. It is projected that sugar maple trees will be displaced to the north as the climate changes and temperatures increase. As forest species change, the dulling of fall foliage could have a negative impact on regional tourism. Distribution of wildlife is also likely to change due to increased temperature and changes in precipitation. Increased surface water temperatures will decrease the habitat for cold-water fisheries including trout and salmon.

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.

Air Quality and Public Health Benefits

As previously stated above, scientific projections of the Northeast climate show an increase in the number of extreme heat days and humidity, which contributes to poor air quality; thus, potentially putting larger numbers of people in the region at risk for adverse health effects.

Higher temperatures, resulting from increased levels of GHG emissions and atmospheric concentrations, contribute to conditions that enhance the formation of ground-level ozone. The presence of strong ultra-violet radiation (sunlight), stable air masses, and the presence of ozone precursors such as volatile organic compounds (VOCs) and oxides of nitrogen (NOX) promote ozone formation. The increased concentrations of ground-level ozone contribute to respiratory illness in children, the elderly, and those with pre-existing illnesses. Higher CO2 concentrations, temperatures, humidity and longer growing seasons may increase pollen quantity and other environmental allergens which in turn may exacerbate asthma. As previously mentioned, increased temperature and precipitation levels also produce conditions favorable to the introduction or spread of vector-borne illnesses such as Lyme disease, equine encephalitis, West Nile virus, and other diseases spread by mosquitoes, ticks, and wild rodents.

Air quality protection programs need to account for the predicted changes in pollution levels and achieve the public health benefits associated with the reduction on CO2 emissions from stationary source categories. In addition to contributing to a 50% reduction in CO2 from affected power plants in New York, it is estimated that the RGGI program provided $1.7 billion in avoided public health costs in New York by reducing associated air pollutants. Across the RGGI region, it is estimated that the RGGI program helped avoid 16,000 respiratory illnesses, up to 390 heart attacks, and 300 to 830 deaths.26 At a more local level, according to a 2002 study, the expected health benefits of urban air pollution reductions from climate change mitigation strategies in the New York City area (assuming that they produce an approximately 10 percent reduction in PM10 and ozone concentrations), would be to avoid approximately 9,400 premature deaths (including infant deaths), 680,000 asthma attacks, and 12 million restricted activity days.27 These preliminary results draw attention to the broad range of more immediate air pollution benefits to public health that mitigating GHG emissions can provide. The proposed regulation ensures significant ancillary public health benefits by simultaneously reducing CO2 and other harmful pollutants.

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 is already a considerable threat, that is expected to be exacerbated 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 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 heating fuel 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 already impacting the State and is expected to further 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 is proposing the reduction of the CO2 emissions cap and budget adjustments, as well as the establishment of the ECR and expanded applicability of the Program, 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 2018, power plants in the State subject to the Program burned fossil fuels to produce approximately 27.3 million tons of CO2 and significant amounts of other harmful pollutants that impact the health and welfare of New Yorkers.28 Since CO2e emissions from electricity generation represent approximately 13 percent29 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 1994, the United Nations Framework Convention on Climate Change went into force, under which 197 nations, including the United States, established the goal of stabilizing atmospheric GHG concentrations at a level that would prevent dangerous anthropogenic interference with the climate system. In 2016, the parties to the Convention each established 'nationally-determined contributions' (NDCs) to limit global temperature rise to below 2°C and to pursue efforts to limit this rise to 1.5°C as part of the Paris Climate Agreement. As reported in the recent Special Report on 1.5 Degrees30, the IPCC found that achieving the policies included in the NDCs would still result in an overshoot of the 1.5°C target. Although the IPCC have identified multiple potential pathways for addressing global climate change, all pathways to achieve the 1.5°C target include the virtual decarbonization of the power sector31.

Given the considerable global CO2 emissions already released to the atmosphere, there is significant risk of exceeding the 2°C target unless decisive, global action is taken within this decade.

By modeling effective GHG emissions reduction, New York can encourage other states and nations to reduce the accumulation of heat-trapping GHGs 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. New York is leading the US Climate Alliance with multiple states to help achieve GHG reductions in line with the United States' contribution to the Paris Climate Agreement32. Moreover, as noted above, the recently-enacted Climate Act cements the State's position as a leader in combating climate change, including by ensuring that the State will achieve reductions far beyond the levels set forth for the United States in the Paris Climate Agreement. Among other requirements, the Climate Act requires Statewide GHG emission reductions of 40 percent from 1990 levels by 2030, and 85 percent from 1990 levels by 2050 and ultimately to reach a net zero emission goal.33

Components of the Proposed Program Revisions

The reduction in the CO2 emissions cap to approximately align with 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, a reduction in reliance on fossil fuels, and energy independence.

The proposed Program revisions will cap regional emissions at approximately 75 million tons annually beginning in 2021 and will reduce that level by 3.0 percent each year through 2030. This represents a nearly 45 percent reduction from the existing cap currently in place under the Program. After 2030, the regional cap will remain at 54.7 million tons annually absent future revisions to the Program. Any such future revisions would follow a regional Program Review process and would be implemented in New York through a subsequent rulemaking.

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 provides for a third budget (cap) adjustment. The Third Adjustment for Banked Allowances will reduce the budget for 100 percent of the private bank of allowances (pre-2021 vintages) held by market participants as of the end of 2020. The adjustment will be implemented over the five-year period, 2021-2025, after the actual size of the 2020 vintage private bank is determined.

To provide flexibility and cost containment the proposed Program revisions retain the 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 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, instead of the 10 million additional CCR allowances, the maximum amount of allowances available under the CCR will be reduced, so that 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 will be 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 size of the ECR and the proposed ECR trigger prices were determined based upon a series of iterative modeling runs. The ECR size and ECR trigger prices are intended to balance cost control (mitigation of short-term falls in emissions reduction costs) and the overall environmental integrity of the regional emissions cap.

The ECR is being proposed to improve the emissions containment mechanism for the program and minimize allowance price volatility. The ECR will provide the capability to withhold allowances from the marketplace, should the costs of CO2 emission reductions be lower than initially anticipated. An analysis by Resources for the Future34 shows that implementing the ECR will provide stability in the performance of the market. This ensures allowance sale prices can continue to achieve RGGI CO2 emission reduction goals, including through investments in energy efficiency, renewable energy, and more. As such, the ECR "leads to sharing the benefits of lower-than-expected compliance costs among economic and environmental interests."

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.

The 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 retain only the offset provisions for avoided methane emissions from agricultural manure management operations.

To address stakeholder concerns, 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.

Finally, the proposed Program revisions retain the interim compliance obligation. This program feature 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 also 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 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.

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 CO2 emission reductions of 30 percent, within the Participating States from 2020 through 2030. 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.35,36,37,38,39

In New York, auction proceeds will continue to support additional GHG emission reductions through investments in energy efficiency, renewable and clean energy and innovative carbon-abatement technologies, as guided by the RGGI Operating Plan.40 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.41

The most recent version of the New York State Regional Greenhouse Gas Initiative-Funded Programs Status Report for the quarter ending December 31, 2018 estimates cumulative annual customer bill savings of $293 million.42

Projected benefits from the proposed revisions are detailed in a study completed by ICF 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.43 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 $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). 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.44

The report for the quarter ending December 31, 2018 reflects benefits associated with spending through that date.45 The table below illustrates the estimated cumulative annual benefits (as of December 2018) 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 Annualized Portfolio Benefits through December 31, 201846,47

Benefits Results through December 2018
Net Greenhouse Gas Emission Savings1 (Annual Tons CO2e2) 1,054,532
Net Electricity Savings (Annual MWh) 1,283,897
Renewable Energy Generation (Annual MWh) 318,680
Net Natural Gas Savings (Annual MMBtu) (474,794)
Net Fuel Oil Savings (Annual MMBtu) 1,607,010
Net Propane Savings (Annual MMBtu) 33,353
Net Steam Savings (Annual MMBtu) 21,813
Net Wood Savings (Annual MMBtu) 13,557
Net Kerosene Savings (Annual MMBtu) 9,053
Net Gasoline Savings (Annual MMBtu) 118,428
Net Residual Oil Savings (Annual MMBtu) 1,501,789
Net Diesel Savings (Annual MMBtu) N/A
Net Coal Savings (Annual MMBtu) 234,940
Total Fuel Savings (Annual MMBtu) 3,065,149
Annual Energy Bill Savings to Participating Customers ($ Million) 292,946,544

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. However, 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 as a given mixture of gases based on factors published by the Intergovernmental Panel on Climate Change.

NYSERDA projects the lifetime savings of the cumulative values in the table to result in expected fuel savings of 62,466,470 MMBtu; electricity savings of 17,446,470 MWh; bill savings of $6,062.6 million; and CO2e emission reductions of 20,762,489 tons. The annual values were converted to lifetime savings by including all operational projects, projects under a signed contract, and projects with an application received that are not yet operational. The Program portfolio also results in non-energy benefits. For instance: Program funds have been used since March 2017 to issue over 12,000 rebates to consumers who purchased a qualified electric vehicle.

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), the Methane Reduction Plan including the Department's stakeholder process to address emissions from the Oil and Gas sector,48 and the State's clean energy and energy storage commitments 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.

Most notably, as described above, the recently-enacted Climate Act establishes Statewide GHG emission reduction requirements and renewable and clean energy generation targets. In particular, ECL Section 75-0107, which was added by the Climate Act, requires a 40 percent reduction in Statewide GHG emissions from 1990 levels by 2030, and an 85 percent reduction from 1990 levels by 2050. Moreover, Public Service Law Section 66-p, which was also added by the Climate Act, establishes a target to generate 70 percent of the State's electricity from renewable energy sources by 2030, and to generate 100 percent of the State's electricity from carbon-free sources by 2040. The proposed revisions to the Program, including the additional reduction in the RGGI CO2 emissions cap and the establishment of the ECR, further the objectives of the Climate Act. Finally, the Climate Act also includes multiple provisions that recognize that historically disadvantaged communities often suffer disproportionate and inequitable impacts from climate change. The proposed revisions to the Program to expand its applicability to include certain smaller sources, many of which are located in such communities, are consistent with these provisions of the Climate Act.

While the Climate Act will also require additional regulatory and other actions to further reduce Statewide GHG emissions from all sectors, the Department has already taken other recent regulatory actions to reduce GHG emissions. First, for example, 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 2018. Section 177 of the Clean Air Act (42 United States Code Section 7507) permits states to adopt California's 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 has revised the CO2 Performance Standards for Major Electric Generating Facilities (6 NYCRR Part 251) to establish CO2 emission standards for non-modified existing fossil-fuel fired major electric generating facilities. 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, as well as the smaller 15 MW sources pursuant to the proposed applicability expansion, while Part 251 sets a specific source-level CO2 emission limit on all fossil-fuel fired sources 25 MW or larger.

Finally, the primary objective of the State's clean energy and energy storage commitments are to combat climate change, reduce air pollution, and ensure a reliable and diverse low carbon energy supply. In January 2019 as part of the State of the State, Governor Cuomo announced the most aggressive clean energy targets in the nation under New York's Green New Deal - a nation leading clean energy and jobs agenda. This includes a significant increase of the New York's Clean Energy Standard where the share of the State's electricity coming from renewable resources will go from 50 percent to 70 percent by 2030. This will be supported by several critical components:

  • Quadrupling New York's offshore wind target to 9,000 megawatts by 2035, up from 2,400 megawatts by 2030.
  • Doubling distributed solar deployment to 6,000 megawatts by 2025, up from 3,000 megawatts by 2023.
  • Deploying 3,000 megawatts of energy storage.
  • More than doubling new large-scale land-based wind and solar resources through the Clean Energy Standard.
  • Maximizing the contribution and potential of New York's existing renewable resources.
  • Expanding and enhancing the Solar For All program to increase access to affordable and clean energy for low-income, environmental justice and other underserved communities.

These components of the Governor's Green New Deal were codified into statute as part of the Climate Act.

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, particularly given the current federal Administration's recent actions to slow or rescind various regulatory and other efforts to reduce GHGs nationally, 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 increase 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. 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 continued action to reduce the region's carbon-intensity will create a competitive advantage relative to other parts of the country when additional action is taken at the national and international level.
  • 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. Additionally, co-benefits will continue to 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 of furthering the GHG emission reduction objectives of the Program.
  • Drive new technology. By attaching tangible financial value to avoided carbon emissions, the proposed Program revisions provide additional 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. This is consistent with the Climate Act's target to obtain 100 percent of the State's electricity from carbon-free sources by 2040.
  • 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.49 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 as part of the Final Generic Environmental Impact Statement, accepted on August 13, 2008, when Part 242 first adopted. Then, following public scoping, emissions leakage was examined as part of the Supplemental Generic Environmental Impact Statement (SGEIS) for the existing Program, accepted on November 12, 2013. In the Findings Statement for that SGEIS the Department concluded that there was no evidence of emission leakage to date under the existing Program. 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 has 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.

The RGGI Electricity Monitoring Staff Working Group (Staff Working Group) continues to analyzed potential emissions leakage and has issued nine annual monitoring reports. The most recent report, issued on November 8, 2019, summarized data for electricity generation, net electricity imports, and related CO2 emissions for the Participating States during the three-year period of 2015-2017 relative to 2006 to 2008, a three-year base period prior to the implementation of the RGGI program. Overall, according to the report, there was a decrease in CO2 emissions and the CO2 emission rate (pounds of CO2 per megawatt hour, or lb CO2/MWh) from non-RGGI electric generation serving load in the nine-state RGGI region as compared to the base case (2006-2008) period.50 In other words, the RGGI Electricity Monitoring reports have provided no evidence of emissions leakage since the start of the RGGI Program.

In addition to the Electricity Monitoring reports issued by the Participating States, during the last program review, the New York Independent System Operator 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.51 In other words, this report also 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 Interconnection52 (which includes the RGGI region) plus the eastern Canadian provinces. Similar to the last program review, the modeling analysis looking at cumulative emissions within the Participating States from 2017 to 2031 as compared to cumulative reductions in the entire Eastern Interconnect regions were used to guide New York and the other Participating States in making the policy decisions under this Program review.

In addition to projections made through electricity sector modeling efforts, New York and the other Participating States will continue to monitor for potential emissions leakage. If monitoring indicates that leakage associated with the Program occurs and needs to be addressed, a number of states including New York (see previously cited Climate Act), are already moving to implement significant clean energy programs, including additional energy efficiency investments, which help mitigate the effects of any emissions leakage. Another way to address leakage, particularly in the form of leakage to non-RGGI units within the RGGI region, is to expand the RGGI Program applicability to non-RGGI affected units, which is being proposed as part of this rulemaking (see previous discussions on the proposed expansion to certain units 15 MW and larger). Moreover, another means to address any emissions leakage, particularly in the form of leakage to sources located outside of the RGGI region, is to include additional Participating States in the Program. New Jersey recently became, once again, a Participating State in the RGGI Program. New York has been closely monitoring the regulatory efforts in both Pennsylvania and Virginia, which could result in their eventual participation in the RGGI program. The RGGI Participating States would expand coverage under the electricity monitoring portion of the Program to include any new participating states.

Further, at the conclusion of Program review, the Participating States committed to engage in a collaborative effort supported by RGGI state staff and informed by discussions with their respective ISOs, to monitor and track relevant data to evaluate potential emissions leakage, and to work to address any emissions leakage that may be identified through this tracking.

Benefits Associated with the Program Revisions with Respect to the Auction and Allocation of Allowances to Energy Efficiency and Clean Energy Technologies.53

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. While NYSERDA is proposing revisions to this regulation to align Part 507 with the revisions being proposed in Part 242, 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)54 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 proposed revisions would retain the existing CCR trigger price for 2020 and will set the new CCR trigger price at $13.00 starting in 2021. After 2021 the CCR trigger price will increase by seven percent each year thereafter (see Table 1 below).

Table 1, CO2 CCR Trigger Price
2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
$10.77 $13.00 $13.91 $14.88 $15.92 $17.03 $18.22 $19.50 $20.87 $22.33 $23.89

The proposed Program revisions will also create the ECR. The ECR will only be triggered and allowances will be 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 (See Table 2 below).

Table 2. CO2 ECR Trigger Price
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
$6.00 $6.42 $6.87 $7.35 $7.86 $8.41 $9.00 $9.63 $10.30 $11.02

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. There were a number of discussions amongst the Participating States surrounding apportionment during this Program review. Based on such discussions, New York retained the same percentage of the regional cap established under the existing Program (approximately 38.93 percent) through the 2018 allocation year. New York is proposing to reduce its base budget from 38.93 percent to 38.70 percent of the nine-state program beginning with the 2019 allocation year. Concurrently, the State of Rhode Island's base budget would increase from 1.84 percent of the nine-state program to 2.5 percent, based partially on New York's adjustment. New York is one of five RGGI states (also DE, MA, MD and VT) that has agreed to an adjustment of their apportionment in order to provide more allowances to Rhode Island. Given the timing of the proposed revisions and the requirements under the existing regulation to allocate allowance at the beginning of each year, New York is proposing to transfer allowances from the adjusted base budget for 2020 to account for the need to complete the adjustment for Rhode Island. New York has adjusted the base budget for 2021 and beyond in the proposed regulation to reflect the change to 38.70 percent. Since 2019 allocation year allowances and 2020 allocation year allowances will have already been allocated under the existing regulation by the time the proposed revisions will become effective, to account for the apportionment commitment to Rhode Island in 2019 and 2020, the Department proposes to create the 2019 and 2020 program review allowance retirement set-aside account. The Department proposes to transfer 184,237 allowances from the 2020 annual adjusted budget allocated to the EE&CET Account into the 2019 and 2020 program review allowance retirement set-aside account to account for the 184,237 allowance increase to the 2019 base budget in Rhode Island's recently adopted regulation. The Department proposes to retire these allowances to keep the regional cap whole for the 2019 allocation year. The Department is proposing to take the 184,237 allowances from allocation year 2020. Similarly, the Department proposes to transfer 179,632 allowances from the 2020 annual adjusted budget allocated to the EE&CET Account into the 2019 and 2020 program review allowance retirement set-aside account to account for the 179,632 allowance increase to the 2020 base budget in Rhode Island's recently adopted regulation. The Department proposes to retire these allowances to keep the regional cap whole for the 2020 allocation year.

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) for 2018, 2019 and 2020. Each of these will be based on the existing and continuing apportionment percentage of approximately 38.93 percent. For each year thereafter, New York's portion of the CCR and ECR will reflect the updated apportionment of 38.70 percent while the percentage for the third adjustment for banked allowances will be based on a regional budget formula reflective of the number of participating states at that time.

As a result of Program review, the regional emissions cap will be adjusted downward to 75,147,784 tons in 2021 and will decline by 2.275 million tons per year thereafter, resulting in a total 30 percent reduction in the regional cap from 2020 to 2030.

Additionally, the program addresses the private bank of allowances by proposing an additional distinct budget adjustment. The Third Adjustment for Banked Allowances would adjust the base 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. This adjustment would be implemented over the five-year period of 2021-2025, after the actual size of the 2020 vintage private bank is determined.

Allowance Set-Asides

The Department proposes to maintain the amount of CO2 allowances allocated to the long-term contract set-aside accounts under the Program while proposing to increase the size of the voluntary renewable energy market and eligible biomass set-aside by 200,000 allowances beginning in 2021. 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 in 2020. Starting in 2021, the Department will allocate 900,000 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 increase the size of the existing "voluntary renewable energy market set-aside" in subdivision 242-5.3(c) to account for anticipated increases in the voluntary renewable energy market in the next couple of years. This revision in conjunction with the revision from the previous rulemaking for Part 242 to expand eligibility for retiring CO2 allowances from the set-aside to include CO2 budget sources that co-fire eligible biomass as a compliance mechanism should address concerns raised by voluntary market participants in the near term. The Department plans to evaluate the emission factor used in determining the number of allowances to retire on behalf of each voluntary renewable energy purchase applicant and the size of the newly expanded set-aside again in the next regional program review.

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. In recent years, this set-aside has been over-subscribed and more than the annual 700,000 CO2 allowance allocation has been retired using allowances from earlier years to satisfy the growth in demand. The proposed expansion in the size of the set-aside in subdivision 242-5.3(c) addresses the likelihood that the set-aside will continue to be over-subscribed in the future. However, should the set-aside of 900,000 be 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.

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.55,56 It should be noted that the costs evaluated in this section reflect the revisions contemplated by the then-Participating States at the end of the nine-state RGGI Program review. That is, this section does not include an assessment of the evaluations57,58 completed by New Jersey and Virginia to support the individual regulatory efforts in. Should the participation of either New Jersey or Virginia in the RGGI program - or, for that matter, Pennsylvania or any other state - have an impact on any aspect of the program, those impacts will be evaluated as part of the next RGGI program review.

The cost below also does not include an individual assessment of the impacts from the State's proposed applicability expansion to cover certain units 15 MW and larger under the Program. Given that historic CO2 emissions from the units being covered under the expansion represent a fraction of a percent of the RGGI regional market, the addition of these sources will have a minimal if any impact on the overall costs of the program.

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 several potential policy 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. Sensitivity analyses were also performed to compare the impacts of changes to program variables such as relative fuel prices and electricity load projections. 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 "Draft IPM Modeling Assumptions Overview" and the "Draft IPM Reference Case Firm Builds and Retirements Assumptions."59 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 2015 dollars. Regional electricity demand growth projections, transmission capacities and limits, and near-term expected infrastructure additions/retirements were obtained from regional ISO sources and augmented with input from the Participating States. For the Henry Hub natural gas price forecast assumption, the average of the U.S. Energy Information Administration's (EIA) 2017 Annual Energy Outlook Reference and High Gas Resource Cases was used, which is approximately $3.95MMBtu in 2020 and $4.21/MMBtu in 2031 (2015 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) nuclear lifetimes were assumed to be 60 years, with plants allowed to retire earlier if firmly planned; 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; and 5) all existing coal facilities in New York are assumed to retire by the end of 2020, consistent with the Department's recently adopted revisions to Part 251.

Under the Reference Case, generation from new gas-fired combined cycle units is projected to supply most of the State's electricity demand. In 2020 gas-fired plants comprise 36 percent of state-wide generation, while nuclear generation accounts for 28 percent, hydroelectric for 19 percent, oil and gas units for 10 percent, less than four percent of in-state generation is supplied by solar and wind and coal comprises less than one percent. By 2031, the portion of generation supplied by gas, hydroelectric and oil and gas units remains relatively flat. However, nuclear generation declines by 61 percent to comprise just 11 percent of in-state generation due to multiple retirements at R.E. Ginna, Nine Mile Point unit 1, and Indian Point Energy Center units 2 and 3. While the share of nuclear generation declines, the penetration of wind and solar in the state increase significantly to supply the state's Clean Energy Standard requirement. By 2031, grid solar comprises two percent of in-state generation, and wind (onshore and offshore) comprises 17 percent.

Additionally, New York increases its electricity exports over time. In 2020, net exports from New York are projected to be 126 gigawatt hours (GWh). In 2031, net exports from New York are projected to be 5,140 GWh. CO2 emissions in the Reference Case are projected to decrease from approximately 31.9 million tons in 2020 to about 30.2 million tons in 2031. This decrease is primarily due to declining load over time and the replacement of retiring nuclear capacity with wind and solar additions.

This generation data was based on the IPM output for the Reference Case, displayed below. The generation data below include generation from Linden and Bayonne, plants located in New Jersey.

New York Reference Case Net Generation (in GWh)
2020 2023 2026 2029 2031
Combined Cycle 54,733 59,934 56,631 50,610 52,478
Combustion Turbine 1,878 1,974 1,954 1,875 1,920
Oil/Gas 15,301 15,879 15,442 15,176 15,272
Coal 985 0 0 0 0
Nuclear 43,826 26,598 26,598 26,598 17,228
Other Steam 11 11 11 11 11
Conventional Generation Total 116,734 104,396 100,636 94,270 86,909
Hydro 29,058 29,350 30,759 31,860 31,982
Biomass 1,694 1,874 1,924 2,088 2,082
Onshore Wind 6,776 10,291 12,331 13,908 15,242
Offshore Wind 0 375 3,400 8,513 10,217
Solar 51 347 481 2,692 3,066
Other Renewable 1,052 1,092 1,117 1,131 1,131
Renewable Generation Total 38,631 43,329 50,012 60,192 63,720
Total GWh 155,366 147,725 150,647 154,463 150,629

This emissions data was based on the IPM Reference Case which are displayed below.

Reference Case CO2 Emissions [Million Tons]
2020 2023 2026 2029 2031
MA 12 12 12 11 11
CT 9 8 7 6 6
ME 1 1 1 1 1
NH 1 0 0 1 0
RI 1 1 1 1 1
VT 0 0 0 0 0
NY 32 34 32 29 30
DE 2 3 3 3 3
MD 24 21 21 23 22
Total RGGI 82 80 77 75 74
Total Emissions at Affected Plants 80 78 75 74 73
Eastern Interconnect without RGGI 1,271 1,276 1,410 1,374 1,387
Total Eastern Interconnect 1,353 1,356 1,410 1,449 1,461
Total Canadian 11 12 13 13 12

Model Rule Policy Case Program Design Assumption

The RGGI Program design for the Model Rule Policy Case sets the regional emissions cap in 2021 to 75,147,784 tons, which declines by 2.275 million tons per year thereafter, resulting in a total 30 percent reduction in the regional cap from 2020 to 2030. In order to account for the bank of allowances and help create a binding cap, the proposed revisions to the RGGI Program create provisions for a third budget adjustment from 2021-2025 that would adjust the base 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. While the Model Rule Policy Case allows a limited number of emissions offsets to be purchased by affected generators (3.3 percent) 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. The 2017 Model Rule contains a provision for a CCR, which is set at 10 million CCR allowances in 2020 with a $10.77 trigger price. The maximum amount of available CCR allowances is modified to 10 percent of the regional cap beginning in 2021, with a trigger price of $13.00 that rises seven percent per year thereafter. The Model Rule also contains a provision for an Emission Containment Reserve (ECR), which, if triggered, would withhold allowances from circulation if prices fall below established trigger prices. The ECR is set at 10 percent of the allowance budget for states implementing the ECR, and the trigger price starts at $6.00 in 2021 and rises at seven percent per year thereafter. These elements of the Model Rule Policy Case are consistent with the proposed revisions to the Program, as described above.

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. Total capacity additions through 2031 are the same in both cases. Electricity generation from gas-fired units in 2031 is about 14 percent lower in the Model Rule Policy Case than in the Reference Case. Generation from renewables is essentially the same in both cases. In the Reference Case, New York is a net exporter of 5,140 GWh in 2031. However, in the Model Rule Policy Case, New York is a net importer of 2,709 GWh in 2031. New York imports more in the Model Rule Policy Case due to lower in-state generation from gas units backing off.

This generation data was based on the differences between IPM output for the Reference and Model Rule Policy Cases which are displayed below.

New York ISO Reference Case Net Generation (GWh)
2020 2023 2026 2029 2031
Combined Cycle 55,733 59,934 56,631 50,610 52,478
Combustion Turbine 1,878 1,974 1,954 1,875 1,920
Oil/Gas 15,301 15,879 15,442 15,176 15,272
Coal 985 0 0 0 0
Nuclear 43,826 26,598 26,598 26,598 17,228
Other Steam 11 11 11 11 11
Conventional Generation Total 116,734 104,396 100,636 94,270 86,909
Biomass 1,694 1,874 1,924 2,088 2,082
Hydro 29,058 29,350 30,759 31,860 31,982
Onshore Wind 6,776 10,291 12,331 13,908 15,242
Offshore Wind 0 375 3,400 8,513 10,217
Solar 51 347 481 2,692 3,066
Other Renewable 1,052 1,092 1,117 1,131 1,131
Renewable Generation Total 38,632 43,330 50,011 60,192 63,720
Total Generation 155,366 147,725 150,647 154,463 150,629
New York ISO Model Rule Case Net Generation (GWh)
2020 2023 2026 2029 2031
Combined Cycle 51,071 57,558 52,763 44,996 45,005
Combustion Turbine 1,851 2,108 1,912 1,816 1,872
Oil/Gas 15,286 15,273 15,224 15,111 14,971
Coal 616 0 0 0 0
Nuclear 43,826 26,598 26,598 26,598 17,228
Other Steam 11 11 11 11 11
Conventional Generation Total 112,661 101,548 96,508 88,531 79,087
Biomass 1,751 1,948 1,990 2,135 2,134
Hydro 29,056 29,355 30,792 31,950 32,137
Onshore Wind 6,776 10,291 12,331 13,908 15,242
Offshore Wind 0 375 3,400 8,513 10,217
Solar 51 347 481 2,692 3,066
Other Renewable 1,052 1,092 1,117 1,131 1,131
Renewable Generation Total 38,686 43,409 50,110 60,329 63,926
Total Generation 151,347 144,956 146,619 148,860 143,013

CO2 emissions in New York are projected to be 3.41 million tons lower in the Model Rule Policy Case than in the Reference Case in 2031. Over the 2020-2031 time period, cumulative CO2 emission reductions from New York are projected to be 25 million tons lower in the Model Rule Policy Case as compared to the Reference Case. Emissions from affected sources across the RGGI region are estimated to be 116 million tons (13 percent) lower under the Model Rule Policy Case than under the Reference Case for the 2020-2031 period

This emissions data was based on the differences between IPM output for the Reference and Model Rule Policy Cases which are displayed below.

Reference Case CO2 Emissions [Million Tons]
2020 2023 2026 2029 2031
MA 12 12 12 11 11
CT 9 8 7 6 6
ME 1 1 1 1 1
NH 1 0 0 1 0
RI 1 1 1 1 1
VT 0 0 0 0 0
NY 32 34 32 29 30
DE 2 3 3 3 3
MD 24 21 21 23 22
Total RGGI 82 80 77 75 74
Total Emissions at Affected Plants 80 78 75 74 73
Eastern Interconnect without RGGI 1,271 1,276 1,333 1,374 1,387
Total Eastern Interconnect 1,353 1,356 1,410 1,449 1,461
Total Eastern Canadian 11 12 13 13 12
Model Rule Policy Case
2020 2023 2026 2029 2031
MA 12 12 12 11 11
CT 9 7 7 6 6
ME 1 1 1 1 1
NH 1 0 0 0 0
RI 1 1 1 1 1
VT 0 0 0 0 0
NY 30 32 30 27 27
DE 2 2 2 2 2
MD 17 17 15 15 15
Total RGGI 72 74 68 63 62
Total Emissions at Affected Plants 71 72 67 61 61
Eastern Interconnect without RGGI 1,282 1,283 1,343 1,385 1,400
Total Eastern Interconnect 1,354 1,357 1,412 1,448 1,462
Total Eastern Canadian 11 12 14 13 13

Under the Reference Case, CO2 allowance prices (the cost of complying with RGGI) rise through 2023 to $2.60/ton (2015 dollars) and then decline to the auction reserve price by 2026 as a result of added renewable generation (particularly offshore wind), where they remain through 2031. Under the Model Rule Policy Case, CO2 allowance prices are projected to increase from approximately $5.96/ton (2015 dollars) in 2020 to about $9.77/ton in 2031.

The allowance price data is based on the IPM output for the Reference and Model Rule Policy Cases and is displayed below.

RGGI CO2 Allowance Price (2015$)
2020 2023 2026 2029 2031
Reference Case $2.32 $2.60 $2.16 $2.18 $2.20
Model Rule Policy Case $5.96 $6.67 $7.80 $8.73 $9.77

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 on 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.

Sensitivity Runs

Sensitivity analyses were performed to develop bounds or projected allowance price collars around the Model Rule Policy Case projections. Two sensitivity cases were specified for analyses that varied several assumptions from the Model Rule Policy Case assumptions.60 First, a higher emissions sensitivity case that assumes higher natural gas prices, the existence of a national carbon emissions reduction program, the retirement of additional nuclear generation in New York and New England, less new transmission from Canada to New England, and higher costs to build new renewables was evaluated. Those assumption differences were specified to put upward pressure on emissions in the RGGI states and thereby quantify the high range of projected RGGI allowance prices. This High Sensitivity Model Rule Policy Case used natural gas prices from the Reference Case scenario in EIA's 2017 Annual Energy Outlook where Henry Hub natural gas prices are estimated to average $4.53/MMBtu from 2020-2031 (2015 dollars) as compared to the average Model Rule Policy Case gas price of $4.00/MMBtu (2015 dollars).

Likewise, a lower emissions sensitivity was developed to determine a lower projected allowance price case by preserving carbon-free generation while adding incremental renewable generating resources. The Low Sensitivity Model Rule Policy Case delayed the retirement of the Indian Point nuclear generation plants from 2020-2021 to 2024-2025, included an additional 1,050 MW transmission line from Canada to New England in 2025, lowered the cost to build new renewables, and added 1,600 MW of planned offshore wind capacity in Massachusetts by 2030. The Low Sensitivity Model Rule Policy Case also assumes lower natural gas prices and does not include a national carbon emissions reduction program. This scenario used natural gas prices from the High Resources scenario in EIA's 2017 Annual Energy Outlook where Henry Hub natural gas prices are estimated to average $3.46/MMBtu from 2020-2031 (2015 dollars).

The modeling case that evaluated the potential impacts of the Updated Model Rule using the higher emissions assumptions was called the High Sensitivity Model Rule Policy Case. Under this case, allowance prices are estimated to be $10.53/ton in 2020, $13.78/ton in 2026 and $17.25/ton in 2031 (all values in 2015 dollars).

The modeling case that evaluated the potential impacts of the Updated Model Rule using the lower emissions assumptions was called the Low Sensitivity Model Rule Policy Case. Under this scenario, allowance prices are estimated to be $5.78/ton in 2020, $7.56/ton in 2026, and $9.47/ton in 2031 (all values in 2015 dollars).

A macro-economic impact study of the Program was also conducted at the direction of the Participating States through Northeast States for Coordinated Air Use Management (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 $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 revisions to 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.

Costs to State and Local Governments

In addition to the costs identified above 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). The Village of Freeport owns and operates Freeport Power Plant No. 2. Emissions monitoring at SACGS and Freeport Power Plant No. 2 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 and the Village of Freeport 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 $5.96 in 2020 and $9.77 in 2031 (in 2015 $) per ton for CO2 under the Program Case. To estimate total costs for SACGS under the Program, the Department reviewed 2013 through 2018 emissions from Jamestown's affected unit. During that time period, Jamestown's CO2 emissions ranged from a low of 71,255 tons to a high of 135,579 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 $425,000 and a potential high of $1.3 million annually. To estimate total costs for Freeport Power Plant No. 2 under the Program, the Department reviewed 2013 through 2018 emissions from Freeport's affected unit. During that time period, Freeport's emissions ranged from a low of 23,662 tons to a high of 37,850 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 $141,000 and a potential high of $369,795 annually. These costs will eventually be passed on to the consumers of electricity from the JBPU and the Village of Freeport. The estimated compliance costs in this paragraph are costs associated with compliance with the Program overall, meaning that the incremental cost of compliance associated with the revisions to the Program would be less.

The JBPU and the Village of Freeport have 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 and Freeport Power Plant No. 2. Although these Program revisions retain the Interim Control Period, that will require JBPU and the Village of Freeport 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 and the Village of Freeport. The JBPU and the Village of Freeport 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 and includes: 1) portfolio development 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 the CO2 Allowance Tracking System (COATS) and conducting allowance auctions. It is anticipated that these costs will not materially 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 and the Village of Freeport owns and operates Freeport Power Plant No. 2. JBPU contains one combined cycle turbine at the SACGS and Freeport Power Plant No. 2 contains one simple cycle turbine that are 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 consistent with or identical to those of the Title IV program, 6 NYCRR Parts 243, 244, 245 and 251. 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. 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 2015, the Department sought to ensure RGGI's continued success - effectively reducing CO2 emissions while providing benefits to consumers and the State. In the fall of 2017 New York along with the other Participating States completed this 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, along with the other revisions as discussed above. Since the No Action alternative would leave the Program unchanged and would not address the results of the regional Program Review at the end of 2017, it was not selected.

Modeling Different Cap Alternatives

The Department also considered different regional emissions cap levels as additional alternatives, rather than the approximately 75 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 identify the best path forward for reducing CO2 from the electricity sector.

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 2021 equal to 75,147,784 million tons declining 2.275 percent each year from 2020 through 2030.

The bank of allowances held by market participants is addressed through the Third Adjustment for Banked Allowances. The adjustment will be made over a five-year period (2021-2025), after the actual size of the 2020 vintage private bank is determined. This adjustment is necessary in order to account for the existing private bank of CO2 emissions 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, 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-invest program as compared to traditional command-and-control regulation. Under the existing Program, additional flexibility was provided through the addition of the CCR. The proposed revisions to the Program include revisions to the CCR and offset provisions.

During program review, New York and the Participating States evaluated the High Sensitivity model runs to inform where to set the CCR trigger prices 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 retained through 2020 at its existing maximum allowance amount of 10 million tons and reduced in size to equal 10 percent of the regional cap in 2021 and each year thereafter. The CCR trigger price will increase to $13.00 in 2021 and will rise at seven percent per year.

In addition to the CCR, the existing flexibility provisions were reviewed. The proposed Program revisions retain the allowable offset usage percentage for compliance purposes at 3.3 percent, while reducing the number of offset categories available under the Program in New York. The revisions to the number of offset categories was informed by a review of each standard and the lack of applications through the first nine years of the Program.

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).61 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.

On June 19, 2019 EPA adopted the Affordable Clean Energy (ACE) rule62 and revisions to the Clean Air Act Section 111(d) implementing regulations63. While the ACE Rule implements emission guidelines for CO2 for existing sources under Section 111(d) of the Act, because such guidelines are improperly based only on efficiency improvements achievable at individual coal-fired power plants, it is not expected to have a meaningful impact in the State. Therefore, the proposed revisions to the Program do not conflict with any federal requirements under Section 111(d) of the Act.

While stationary sources may be subject to Title V and Prevention of Significant Deterioration (PSD) permitting requirements for GHGs under the Act, 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 continue to 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 advocate for federal programs and participate in 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

As noted above, the proposed revisions to the Program expand the applicability provisions of the current Program to certain units that are 15 MW and larger. While this will add a number of sources to the Program, the majority of electric generating facilities in the State are already subject to the current Program and will remain subject to the proposed revisions to the Program. Moreover, pursuant to the proposed revisions, the control periods under the Program will remain unchanged, with a CO2 allowance transfer deadline of March 1st of each year for interim compliance and every third year for control period compliance. The revised Program will require affected sources already subject to the Program to continue to comply. Units newly subject to the Program under the proposed expansion to certain units 15 MW and larger will be subject to the Program for compliance purposes beginning in 2021.

The proposed revisions to the Program retain the 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 Program was in 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 was subject to the interim control period requirements of the Program starting on the later of January 1, 2015 or the date the unit commences operation. Units 15 MW and larger 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.

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.

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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. As discussed further below, 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. The Participating States also released Principles to Accompany Model Rule Amendments on December 19, 2017.
3 Chapter 106 of the Laws of 2019.
4 80 Fed. Reg. 32,520 (July 8, 2019).
5 NYSERDA 2019. New York State Greenhouse Gas Inventory 1990-2016. Available at: https://www.nyserda.ny.gov/About/Publications/EA-Reports-and-Studies/Energy-Statistics
https://www.nyserda.ny.gov/About/Publications/EA-Reports-and-Studies/Patterns-and-Trends
6 RGGI, Inc. is a 501(c)(3) non-profit corporation created to provide technical and administrative services to the Participating States.
7 NOAA. 2019. Climate Change: Atmospheric Carbon Dioxide. Available at https://www.climate.gov/news-features/understanding-climate/climate-change-atmospheric-carbon-dioxide
8 IPCC WGI Fifth Assessment Report, Climate Change 2013: The Physical Science Basis, September 2013, and available at: http://www.ipcc.ch/.
9 Ibid.
10 Ibid.
11 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
12 Horton, R., D. Bader, C. Rosenzweig, A. DeGaetano, and W. Solecki. 2014. Climate Change in New York State; Updating the 2011 ClimAID Climate Risk Information, New York State Energy Research and Development Authority (NYSERDA), Albany, New York.
13 Rosenzweig, 'op.cit.'
14 6 NYCRR Part 490, Projected Sea-level Rise.
15 Rosenzweig, 'op.cit.'
16 Michigan Department of Environmental Quality: Shorelines of the Great Lakes. http://www.michigan.gov/deq/0,1607,7-135-3313_3677-15959B,00.html.
17 Climate Change and Water Quality in the Great Lakes Basin 2003: Report of the Great Lakes Water Quality Board to the International Joint Commission. Chapter 2.2, page 18.
18 https://www.marinedelivers.com/media_release/raising-water-outflow-levels-on-seaway-above-10400-cms-could-cost-bi-national-economy-over-1-billion/
19 National Oceanic and Atmospheric Administration (NOAA). Treasure Our New York Coasts and Estuaries. June 2003. p.1.
20 Rosenzweig et al. p.35
21 Garcia, Alvaro. Dealing with Heat Stress in Dairy Cows. South Dakota Cooperative Extension Service. September 2002. Page 1.
22 Milk Production, Disposition and Income: 2017 Summary, at p. 6, United States Department of Agriculture, National Agricultural Statistics Service, May 2019, available at https://usda.library.cornell.edu/concern/publications/4b29b5974
23 Frumhoff, Peter. Confronting Climate Change in the U.S. Northeast: Science, Impacts, and Solutions, Northeast Climate Impacts Assessment, July 2007, p. 69.
24 Milk Production, Disposition, and Income: 2017 Summary, at p. 9.
25 New York State Adirondack Park Agency (APA), http://www.apa.ny.gov/About_Park/index.html
26 Abt Associates. 2017. Analysis of the Public Health Impacts of the Regional Greenhouse Gas Initiative. Available at https://www.abtassociates.com/insights/publications/report/analysis-of-the-public-health-impacts-of-the-regional-greenhouse-gas
27 Cifuentes, L., Borja-Aburto, V.H., Gouveia, N., Thurston, G., Davis, D.L., 2001. Assessing the health benefits of urban air pollution reduction associated with climate change mitigation (2000-2020): Santiago, Sao Paolo, Mexico City, and New York City, Environmental Health Perspectives, Vol. 109, Supplement 3: 419-425.
28 https://rggi-coats.org/eats/rggi
29 NYSERDA 2019. New York State Greenhouse Gas Inventory 1990-2016. Available at: https://www.nyserda.ny.gov/About/Publications/EA-Reports-and-Studies/Energy-Statistics
30 IPCC. 2019. Global Warming of 1.5 ºC. Special Report. Available at https://www.ipcc.ch/sr15/
31 IPCC. 2019. Rogelj J. et al. 2018. 2.3.2.1 Variation in system transformations underlying 1.5°C pathways.
32 https://www.usclimatealliance.org/
33 ECL section 75-0107.
34 The Next Big Thing in Carbon Markets? RGGI to Implement an Emissions Containment Reserve. Dallas Burtraw. RFF's online magazine. Fall 2017. http://www.rff.org/research/publications/next-big-thing-carbon-markets-rggi-implement-emissions-containment-reserve-reserve
35 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
36 http://www.env-ne.org/public/resources/pdf/ENE_RGGI_Macroeconomic_Benefits_110915.pdf
37 http://www.synapse-energy.com/Downloads/SynapseReport.2012-02.RAP.RGGI-Energy-Efficiency-Benefits.10-027A.pdf
38 http://theenergycollective.com/wurzelmann/59328/rggi-s-benefits-costs-and-why-it-should-stay
39 http://www.eany.org/images/Reports/rggi_success_apr2012.pdf
40 New York State Energy and Research Development Authority (NYSERDA). New York State's Regional Greenhouse Gas Initiative Investment Plan. 2018 Operating Plan. Final Report' December 2018. https://www.nyserda.ny.gov/-/media/Files/EE/RGGI/2018-rggi-operating-plan.pdf
41 21 NYCRR Part 507.4(e), available at https://www.nyserda.ny.gov/-/media/Files/EE/RGGI/RGGI-Part-507/CO2-Allowance-Auction-Program-FINAL.pdf
42 New York State Energy and Research Authority, "New York State Regional Greenhouse Gas Initiative-Funded Programs Status Report," Quarter Ending December 31, 2018. https://www.nyserda.ny.gov/About/Publications/Program-Planning-Status-and-Evaluation-Reports/RGGI-Reports
43 RGGI Program Review: REMI Modeling Results (ICF), December 2017. https://www.rggi.org/sites/default/files/Uploads/Program-Review/12-19-2017/REMI_2017_12_19.pdf
44 https://www.nyserda.ny.gov/-/media/Files/EE/RGGI/2018-rggi-operating-plan.pdf
45 https://www.nyserda.ny.gov/-/media/Files/Publications/Energy-Analysis/RGGI/2018-RGGI-semiannual.pdf
46 New York State Energy and Research Authority, "New York State Regional Greenhouse Gas Initiative-Funded Programs Status Report," Quarter Ending December 31, 2018. https://www.nyserda.ny.gov/About/Publications/Program-Planning-Status-and-Evaluation-Reports/RGGI-Reports
47 https://data.ny.gov/Energy-Environment/Fuel-Savings-by-Type-from-RGGI-Funded-Projects/3dbk-8jiw
48 https://www.dec.ny.gov/chemical/113887.html
49 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.
50 https://www.rggi.org/sites/default/files/Uploads/Electricity-Monitoring-Reports/2017_Elec_Monitoring_Report.pdf
51 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
52 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.
53 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.
54 See discussion of Cost Containment Reserve provision on page 2.
55 "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
56 https://www.rggi.org/sites/default/files/Uploads/Program-Review/9-25-2017/Customer_Bills_Results_Overview_09_25_17.pdf
57 https://www.state.nj.us/dep/aqes/rggi.html
58 See What's New as of March 2019 at: https://www.deq.virginia.gov/Programs/Air/GreenhouseGasPlan.aspx
59 https://www.rggi.org/program-overview-and-design/program-review
60 September 25, 2017 meeting materials at: https://www.rggi.org/program-overview-and-design/program-review
61 Endangerment and Cause or Contribute Findings for Greenhouse Gases Under Section 202(a) of the Clean Air Act, 74 FR 66496, December 15, 2009.
62 https://www.epa.gov/stationary-sources-air-pollution/affordable-clean-energy-rule
63 https://www.epa.gov/stationary-sources-air-pollution/fact-sheet-revised-caa-section-111d-implementing-regulations