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Express Terms Summary Proposed Part 242

The New York State CO2 Budget Trading Program, 6 NYCRR Part 242 (CO2 Budget Trading Program or Part 242) is designed to reduce anthropogenic emissions of carbon dioxide (CO2), a greenhouse gas (GHG), from CO2 budget sources in an economically efficient manner. The proposed revisions to Part 242 include a proposed reduction in the annual CO2 emission budgets, the creation of an Emissions Containment Reserve (ECR), the elimination of two offset categories, and an expansion of applicability to certain units that serve an electricity generator with a nameplate capacity equal to or greater than 15 MW.

The proposed revisions to Part 242 will reduce the annual base budgets by nearly 30 percent for the period 2020-2030. In particular, the proposed revisions to Section 242-5.1 establish that, for allocation year 2021, the Statewide CO2 Budget Trading Program base budget will be 29,056,270 tons, decreasing thereafter as follows: to 28,175,777 tons in 2022, to 27,295,284 tons in 2023, to 26,414,791 in 2024, to 25,534,298 tons in 2025, to 24,653,805 tons in 2026, to 23,773,312 tons in 2027.

In addition to the proposed reduction in annual CO2 Budget Trading Program base budgets, the proposed revisions to Part 242 also include a third 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 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 revisions to Part 242 also include the creation of the 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 revisions to Part 242 will retain only the offset provisions for avoided methane emissions from agricultural manure management operations. 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.

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 Energy Efficiency and Clean Energy Technology (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.

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.

Under the proposed revisions, the control periods 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.

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. 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.

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 New York State Energy Research and Development Authority (NYSERDA) will continue to administer the energy efficiency and clean technology account pursuant to 21 NYCRR Part 507 (CO2 Allowance Auction Program).

The Reserve Price is the minimum acceptable price for each CO2 allowance in a specific auction. The reserve price is either the Minimum Reserve Price (MRP) or the CCR trigger price, depending on the level of demand for allowances at the auction. The proposed revisions to Part 242, 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.

The proposed revisions to Part 242 would 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 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. 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 expands 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 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.

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.

Finally, the proposed revisions to Part 200 include updated references that are incorporated by reference into the proposed revisions to Part 242.


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    Proposed Part 242
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