Tuesday, Dec. 20, 2005
Governor Minner and Six Other Governors Announce Agreement on Regional Greenhouse Gas Initiative
Dover – Governor Ruth Ann Minner is one of seven governors of Northeast states to announce their agreement today on a regional climate change and energy program known as the Regional Greenhouse Gas Initiative (RGGI). RGGI is a cooperative effort by Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont to address one of the most pressing environmental challenges of the day—climate change—while also furthering sound energy policies that foster energy efficiency and energy independence.
RGGI is the first cap-and-trade program to control carbon dioxide emissions in the United States. The program is aimed primarily at reducing carbon dioxide pollution through a mandatory emissions cap on the electric generating sector, coupled with a market-based trading program to achieve the lowest possible compliance costs. RGGI will also achieve significant reductions through end-use energy efficiency and through greenhouse gas emission reduction projects undertaken outside of the power sector.
“This historic agreement represents the first significant step toward reducing greenhouse gas emissions in this nation,” said Governor Ruth Ann Minner. “I am proud that Delaware has been part of this very important effort which I believe will result in measurable reductions of greenhouse gas emissions in a manner that maintains reliability and economic certainty in our electrical generating sector. I also see the potential for this program serving as a national model.”
MOU Released Detailing Program
The states today released a Memorandum of Understanding (MOU) that will be signed by each state. The MOU details the key components of the program. Beginning in 2009, RGGI will stabilize carbon dioxide emissions from power plants in the region at current levels through 2015, and reduce emissions by 10 percent from current levels by 2019.
Under the cap-and-trade program, the states will issue one allowance, or permit, for CO2 emissions for each ton of pollution allowed by the cap. Each plant will be required to have enough allowances to cover its reported emissions. The plants may buy or sell allowances, but an individual plant’s emissions cannot exceed the amount of allowances it possesses. The total amount of the allowances will be equal to the emissions cap for the seven-state region. Electric generating units with a capacity of 25 megawatts or more will be included under RGGI.
At least 25 percent of a state’s allowances must be dedicated to strategic energy or consumer benefit purposes, such as new technologies and ratepayer rebates. A power plant also could purchase these allowances for its own use. The funds generated from these sales will be used for beneficial energy programs.
This agreement allows power plants to utilize “offsets”- greenhouse gas emission reduction projects from outside the electricity sector - to account for up to 3.3 percent of their overall emissions. Offset projects provide generators with additional flexibility to meet their compliance obligations at the lowest cost. A power plant owner/operator will be allowed to select the lowest cost emission reductions and apply them to a portion of the plant’s emissions requirement. Examples of offset projects include: natural gas end-use efficiency, landfill gas recovery, reforestation, and methane capture from farming or natural gas transmission facilities. Under the program, offset projects will be accepted from anywhere in the United States, with a 2:1 preference for projects in the region.
The program incorporates additional measures to ensure that the cost of allowances remains affordable. For example, if the average annual price of an emission allowance were to rise above $7, offsets would then be allowed from anywhere in North America at a 1:1 ratio and could be utilized to offset up to 5 percent of a plant’s reported emissions. Expanding the regional area from which to find offset projects and allowing offsets to account for a greater percentage of emissions will help to keep energy prices low.
The agreement also establishes a $10 per allowance “safety valve.” Under this provision, if allowances exceed $10 for a sustained period of time, the compliance period would be extended by the states, and the generators would be allowed to use offsets for up to 20 percent of their reported emissions. Under the “safety valve,” offset projects also would be allowed from an international trading program.
Any price impacts of this program are expected to be minimal, with estimates projecting that average household bills would increase by approximately $3-$24 annually. However, it also is anticipated that RGGI will generate significant new investments in innovative and cleaner technologies and energy efficiency, which could lower electricity rates. To analyze the potential cost of the RGGI program, the states conducted an extensive series of technical studies over a two-year period. These analyses were conducted by ICF Consulting, Inc., a well respected energy analysis firm used widely by the energy industry, as well as state and national governments. These studies were subject to close stakeholder scrutiny throughout the design process.
The participating states plan to issue a draft model regulation for public review and comment in early 2006. Each individual state will then proceed with the required legislative or regulatory approvals to adopt the program. Pending the completion of this process, the RGGI program is slated to begin on January 1, 2009.
“Today’s agreement fulfills our pledge to address climate change with a market-based, flexible policy,” said John Hughes, Secretary of the Delaware Department of Natural Resources and Environmental Control. “And by including offsets, we are providing power plant owners the flexibility to meet their commitments in the most cost-effective way possible. The inclusion of offsets will also mean new investment in the region for other projects that yield measurable environmental co-benefits.”
“There is a vital need for a program to address climate change in this country,” said Arnetta McRae, Chair of the Delaware Public Service Commission. “I believe RGGI to be an excellent start. It is a unique partnership of states, governors, and the agency heads of state environmental offices and utility commissions. The program has been carefully crafted to limit greenhouse gas emissions, while keeping any rate impacts to a minimum.”
MOU is Culmination of Two-and-a-Half Year Effort
RGGI began in April 2003, when New York Governor George E. Pataki invited the governors of the Northeast states, from Maine to Maryland, to participate in the design of a mandatory cap-and-trade program to cover power plants. By September 2003, the six New England states, New York, New Jersey and Delaware had begun active participation in the planning, analysis and design of the RGGI program. Since then, Massachusetts and Rhode Island have elected not to participate in the program at this time, despite recent negotiations and program modifications made to address cost concerns expressed by all parties. The program is not expected to be any less effective as a seven state program as it would have been with all nine states participating. Massachusetts and Rhode Island may reconsider at any time, and the program is open to any state wishing to join in the effort.
“DuPont has long considered climate change a serious global environmental issue, and that is reflected in the leadership role we have taken by reducing our own greenhouse gas emissions by 72 percent. We appreciate Delaware’s leadership efforts on this important global initiative,” said Linda J. Fisher, DuPont vice president and chief sustainability officer. “The market mechanisms, which are a cornerstone of RGGI, are an essential component to addressing climate change in a cost effective manner. Climate change is a global problem and it requires a global response.”
“Bank of America applauds Delaware and the northeast states on taking action on an increasingly urgent environmental concern. The approach developed through the Regional Greenhouse Gas Initiative rewards innovation and demonstrates that the region can address climate change using a market-based approach,” said James E. Mahoney, director of public policy, Bank of America.
The Northeast region has a history of being at the forefront of climate change. New Jersey was the first state to establish an official Greenhouse Gas (GHG) reduction target. In 2001, the New England Governors and Eastern Canadian Premiers agreed to a joint climate action plan that led to individual state climate action plans. In 2001, New York established a GHG task force that issued a set of recommendations, including a recommendation to start RGGI.
Among the many and varied actions taken by the Northeast states to address the challenge of climate change are: renewable portfolio standards to increase electricity generation from renewable sources; efforts to improve end-use electric and natural gas energy efficiency; and commitments to adopt California’s greenhouse gas standards for vehicles.
