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The Regional Greenhouse Gas Initiative
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| Climate change and resulting sea-level rise could bring about serious impacts on places The Nature Conservancy and other conservation partners have worked to protect over the years, including Great Bay. Eric Aldrich © The Nature Conservancy |
What is RGGI?
The Regional Greenhouse Gas Initiative (RGGI), is an agreement among 10 Northeastern and Mid-Atlantic states to implement a market-based cap-and-trade system by 2009, mandating a cap and reduction in carbon dioxide (CO2) emissions from power plants. RGGI is the first mandatory cap-and-trade program in the
Why regulate CO2 emissions?
Climate change is caused primarily by the emission of heat-trapping gases, chiefly carbon dioxide (CO2), produced by vehicles, industrial processes, power plants and deforestation. As these gases build up, they act like a thick blanket, over-heating the planet and causing dangerous changes to our climate patterns and threatening our health, our economy and our environment. CO2 is the most abundant greenhouse gas that contributes to global warming. As power plants contribute to 38% of all greenhouse gas emissions nationally, regulating this source helps mitigate global warming.
Climate Change Resources
How will RGGI be implemented?
Under a Memorandum of Understanding (MOU) signed by the state governors, CO2 emissions from electric-generating power plants (“sources” that generate 25 megawatts or greater) will be capped. RGGI has established a regional cap at 188,076,976 short tons which equates to capping emissions at roughly current levels until 2015. From 2015-2018, CO2 emissions from these sources will be reduced by 2.5% per year until a 10% reduction is achieved. The RGGI Model Rule provides a regulatory framework, detailing the mechanics and function of the market trading system, for each state to implement and administer the program.
What states have signed on to RGGI, and what actions must the states take to launch the program?
Seven states initially signed the MOU,
The chart below lists each participating state’s CO2 budget, as agreed to in the MOU.
|
STATE |
CO2 Budget (short tons) |
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10,695,036 |
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7,559,787 |
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|
5,948,902 |
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|
8,620,460 |
|
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22,892,730 |
|
|
64,310,805 |
|
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1,225,830 |
|
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26,660,204 |
|
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2,659,239 |
|
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37,503,983 |
In order to launch the program, each state must adopt the RGGI Model Rule as regulation and most states have to pass legislation. All 10 states are taking the necessary steps to implement the program and are expected to complete these processes in time to implement RGGI by January 1, 2009.
What is New Hampshire's legislation on RGGI?
House Bill 1434. Phase I (2009-2014) calls for a cap on emissions at 8.6 million tons of carbon dioxide from fossil fuel-powered power plants in New Hamphsire. Phase II (2015-2018) calls for a 2.5 percent reduction in carbon dioxide emissions per year. New Hampshire emissions would be capped at 7.8 million tons by 2018.
The bill calls for market-based compliance:
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Power plants must have enough allowances to equal their emissions by the end of the three-year compliance period (1st three years of the program).
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1 allowance equals the right to emit 1 ton of carbon dioxide.
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Utilities can buy allowances at a regional auction and/or can purchase offsets.
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Purchase of offsets includes: landfill methane capture; afforestation, end-use efficiency, SF6 capture, limited to 3.3 percent of power plant's emissions; 1 offset equals 1 ton of carbon dioxide.
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If a power plant is under the emissions cap, then it can sell allowances to other power plants in the region that are emitting above their cap.
Proceeds of emissions allowances will go into state energy conservation, efficiency, and low-income consumer rebate programs.
How did RGGI get started?
In 2003, New York Governor George Pataki invited the governors of states from
What is a cap-and-trade system and how does it work?
Cap-and-trade systems have been successfully implemented in the
· The RGGI model rule establishes the emission sources to be regulated and level of the emission cap and reductions to be achieved over a specified timeframe from the regulated sources.
· In order to establish the emission cap, a baseline of emissions was determined, which was based primarily on the historic level of emissions from the regulated sources. In the case of RGGI, the cap is measured in short tons of CO2.
· An allowance budget has been assigned to each state in the RGGI program. One allowance is created for each ton of CO2, up to the amount of the total state budget and is the tradable commodity. States will decide to auction off, give away or otherwise distribute the allowances to the regulated entities and the market.
· Every regulated source is required to have enough allowances to equal its emissions at the end of each compliance period, which in RGGI is set at three years.
· Sources that do not have enough allowances to cover their projected emissions can either reduce their emissions, buy allowances on the market or buy credits generated from emissions offset projects, projects outside of the regulated sector that generate emission reductions. Sources with excess allowances can bank them to meet future compliance periods, or sell them to other sources.
· The regional trading of allowances promotes cost effective means of reducing emissions, while creating incentives for technological innovation and transition to cleaner fuels and renewable energy. Typically, regulated sources that fail to comply are subject to fines and penalties.
How will allowances be distributed?
Under RGGI, each state can determine its method of distributing allowances. According to the MOU, at least 25 percent of the allowances must be auctioned to generate revenue for “consumer benefit or strategic energy purpose,” such as energy efficiency, renewable energy, new technology or consumer rebates. Several states, including
What are offsets?
Under RGGI, an emission source can use credits from offsets. Offsets are certified emission reductions or carbon sequestration projects outside of the electricity sector.
RGGI states have agreed to study and certify additional offset project types, but initially, the following kinds of offset projects can be used to meet a sources emissions limit:
- Landfill gas (methane) capture/combustion.
- Reduction or avoidance of CO2 emissions from end-use natural gas, heating oil and propane energy efficiency.
- Tree-planting on non-forested land (afforestation).
- Methane capture from agricultural manure management.
- Sulfur hexafluoride (SF6) capture/recycling from electricity transmission and distribution equipment.
How can offsets be used by regulated sources in RGGI to meet their emission limits?
In RGGI, regulated sources can use offsets to meet up to 3.3 percent of its emissions (which is equivalent to about half of the average source’s emission reduction projected under the program). Price thresholds or triggers are built into the program to allow the use of greater amounts of offsets. If the price of carbon allowances should equal or exceed $7 per ton (calculated over a 12-month rolling average, in 2005 dollars), the amount of offsets allowed will increase to 5 percent of a source’s emissions for the remainder of the compliance period. If the price hits $10 per ton, sources may use offset credits to cover 10 percent of their emissions in the compliance period, and international offset projects may be used.
Initially, offset projects can be located anywhere in the
Offsets from internationally located projects will be allowed if allowance prices break $10/ton.
What is The Nature Conservancy’s position on RGGI?
The Conservancy supports the implementation of the RGGI program as a commendable precedent to reduce carbon dioxide emissions from power plants using a market-based system at minimal cost to electricity consumers. It is a tremendous first step that is serving as an important catalyst for future climate change policies across the
- A 100 percent auction of RGGI allowances under which the majority of allowance auction proceeds would fund energy efficiency and conservation and renewable energy development;
- Limiting direct allocation of allowances to utilities to encourage utilities to reduce emissions and maximize the long-term benefits of RGGI.
- Creating a Greenhouse Gas Reduction Fund advisory board to oversee allowance revenue expenditures into energy efficiency and conservation; and
- Establishing a sunset provision of 2012 if a trigger price is established that would provide rebates to taxpayers.
Why is climate change adaptation important to the work of The Conservancy?
Climate change will alter landscapes and seascapes as we know them. The Conservancy is currently analyzing the impacts of global warming on plants, animals and natural communities and seeking and developing innovative conservation solutions that will enable natural areas to cope with and adapt to what may be unavoidable effects of climate change.
What is The Conservancy’s position on including offsets in RGGI?
The Conservancy supports including incentives for land conservation and restoration in a cap-and-trade program by allowing trading of verified credits from these practices. In the RGGI program, these credits are termed offsets. Inclusion of offsets in RGGI and other cap-and-trade programs can help to lower the overall compliance costs, and allow for more aggressive emission reduction goals.
What is The Conservancy’s position on the offset project types in RGGI?
The Conservancy supports expanding the types of offsets that sources can use to meet the emissions limits to include sustainable forest management and conservation. The Conservancy intends on working with the RGGI Staff Working Group to carry out the provision in the MOU calling for consideration of forest management as an offset project type. The Conservancy is leading an 11-state study in the Northeast (http://conserveonline.org/workspaces/necarbonproject) to determine the potential quantity of carbon reductions available and the corresponding cost of that carbon created by forest management and restoration activities.
Will RGGI affect consumers?
The program is projected to have modest price impacts on electricity, with regional retail increases ranging from 0.3 to 0.6 percent in 2015 for residential, commercial and industrial customers. The average household could see a bill increase ranging from $3-$16 annually[1]. Improved end-use energy efficiency over time that could result from the investment of auction revenue is projected to produce average household bill savings that exceed RGGI’s cost.
In New Hampshire, a Unversity of New Hampshire economics study (Gittell and Magnusson, January, 2008) found that:
If New Hampshire joins RGGI:
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All N.H. ratepayers will see a savings of $67,774,828
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Change to average monthly electric bill: Residential households: $3.09 savings per month; small businesses: $9.78 savings per month; large businesses: $1,205 savings per month.
If New Hampshire does not join RGGI:
All N.H. ratepayers will see additional costs of $35,806,006
Change to average monthly electric bill: Residential households: $1.63 additional monthly costs; small businesses: $5.16 additional monthly costs; large businesses: $1,205 additional montlhly costs.
What is “leakage” and how will this be addressed?
Leakage refers to the importation of power from outside of the RGGI region into the RGGI region. Because RGGI states currently consume more electric power than they produce, some power is imported. There is shared concern that setting emissions limits on power plants in RGGI states could lead to increased imports from other regions of cheaper and higher carbon-emitting electricity, such as from coal plants, due to the slight increases in electricity prices within the RGGI region. This effect might undermine the emission reduction gains achieved by the cap and thus reduce the overall effectiveness of RGGI. Among the suggestions for addressing leakage are tracking imported electricity, reduction of demand through efficiency policies, possibly subjecting the imported power to allowance trading under the emissions cap. The cooperating states are working on a plan to address leakage with final recommendations due by December 2007.
What are the next steps for RGGI?
Participating states have until Dec. 31, 2008, to adopt the RGGI Model Rule as regulation and/or law. The program is set to launch by
How will the states continue to coordinate and implement the RGGI program?
The states have agreed to create, maintain and fund (proportional to its CO2 budget) a Regional Organization (RO) with an Executive Board to administer the ongoing program. The functions of the RO will include facilitating deliberations among the states, establishing and operating an emissions tracking and allowance trading system, developing new offsets standards and reviewing offset projects.
Why does The Conservancy care about climate change and what are we doing to address it?
Climate change is the number one threat to plants and animals over the next century.
The Conservancy’s lead scientists have identified climate change as the greatest long-term threat to our conservation mission — it threatens every investment we have ever made or will make. The most recent report from the Intergovernmental Panel on Climate Changes suggests that roughly 30 percent of the Earth’s plants and animals could become extinct by the end of the century absent immediate and sustained action to reduce emissions causing climate change.
The Nature Conservancy is tackling climate change in three ways:
- Reaching out to opinion leaders and federal policy makers to raise awareness of climate change and possible policy solutions, and supporting the passage of federal climate change legislation.
- Working to create global incentives to reduce deforestation emissions through
- Analyzing the impacts of global warming and seeking innovative conservation solutions that will enable natural areas to cope with and adapt to what may be unavoidable effects of climate change.
Taking action now can avert the most extreme anticipated impacts of climate change and can have positive effects on people’s everyday lives.
What is The Conservancy’s position on other federal, regional and state climate change policies as they emerge?
1) The Conservancy supports mandatory policies to reduce heat-trapping emissions from fossil fuel consumption, deforestation and other damage to natural landscapes. We support a strong cost-effective cap on emissions that achieves a 60% to 80% reduction in emissions from current levels by 2050. To meet this cap, the Conservancy supports implementing a well designed market-based program, such as a cap and trade program that will spur innovation and allow companies to meet the emission reduction goals at the lowest possible cost.
2) The Conservancy supports setting aside a portion of the revenue generated by auctioning emissions allowances under a cap and trade program to help wildlife cope with the impacts of climate change.
3) The Conservancy supports including incentives for land conservation and restoration in a cap and trade program by allowing trading of verified credits from these practices.
For questions regarding the RGGI, please contact:
Sarah Murdock, The Nature Conservancy, Climate Change Program Manager,
smurdock@tnc.org, 617-542-1908 x204
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