Staff Working Group Update on Staff Working Group Update on Development of Potential OffsetsDevelopment of Potential Offsets

Chris Sherry, NJ DEPRGGI Stakeholder Group Meeting

Boston, MAMay 19, 2005

Overview

Offsets Development Action Items -- In Process:• Expand Phase-I offsets• Elaborate process for expansion of offsets scope post-model rule• Identify Phase-II offsets for development post-model rule• Identify options for favoring in-region offsets while maintaining

international interaction• Identify options for limitation of quantitative scope of offsets

Process Update:• Example model rule outline• Offsets modeling update

Expansion of Phase-I Offsets

• Add oil/propane, solar thermal to current natural gas end-use energy efficiency offsets standards– Would not require significant redesign of standards– Significant additional emissions reduction potential

• Analyze viability of complimentary standards for industrial sector, in addition to current focus on building sector

Elaborate Process for Expansion of Offsets Scope Post-Model Rule

• Elaborate general standards criteria (e.g., additionality) to inform development of future standards– May be specified formally in model rule, or by agreement

among participating states

• Specify post-model rule development process and role of regional organization– Concurrent with development of design proposal for regional

organization

Identify Phase-II Offsets for Development Post-Model Rule

• Stakeholder input welcomed, considering context of SWG evaluation criteria elaborated at prior meetings

• What is viable for development of standards in next two years?

Identify Options for Favoring In-Region Offsets while Maintaining Robust International Interaction

• In-Region:– Capture environmental co-benefits– Capture investment in region (ratepayer impacts reinvested

in state/region)

• International:– Functional price cap (RGGI as price-taker)

• Agency Heads asked for possible mechanisms to balance these policy objectives

Identify Options for Favoring In-Region Offsets

Possible Mechanisms:• Expansion of categorical scope based on sustained price trigger

(applied to CDM, possibly EU ETS allowances)– Agency heads expressed comfort with use of EU ETS

allowances, some reservations related to CDM– Would need to determine mechanism for identifying if

threshold met• Discounting out-of-region offsets credits• Incentives for in-region offsets credits• Treatment through allocations (e.g., percentage of source

compliance through offsets factored into state allocation methodology - presumes updating allocation)

Options for Limitation of Quantitative Scope

Key Issue:• Place limit on state budget?• Place limit on source?

Related Issue:• Should there be any guidance on which states project

developers apply to for offsets approval?– Requirement to apply to state where offset project occurs?

State Budget Mechanism

State emissions budget limitation (equivalent to % of state’s emissions budget):

• No differentiation of RGGI allowances based on origin would be necessary

• No limitation placed on individual sources (first come, first served)• Would limit number of offsets that could enter RGGI market• Could limit availability of certain offsets types if also requirement

that project developers apply to state in which project occurs• Regulators could potentially be in position of denying applications

based on quantitative limitation

Source Limitation Mechanism

Source limitation: (based on region-wide emissions % limitation applied to sources, % of individual source allocation, other?)

• If limitation placed on source, an unlimited number of offsets credits could enter the market, but only a finite number of offsets credits could be utilized by individual sources to meet their compliance obligations

• RGGI allowances would need to carry a marker indicating that they were generated from an offset

• States would need to track compliance with this additional requirement at the end of each compliance period when emissions and allowances are trued-up for each source