presentation to rggi stakeholder group september 21, 2005

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Presentation to RGGI Stakeholder Group September 21, 2005

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Page 1: Presentation to RGGI Stakeholder Group September 21, 2005

Presentation to

RGGI Stakeholder Group

September 21, 2005

Page 2: Presentation to RGGI Stakeholder Group September 21, 2005

Objectives

• Recap 2-Year Process

• RGGI Design Principles

• Present Details of Latest SWG Proposal to Agency Heads

• Present Details on Offsets

• Detail Projected Impacts of Proposal

• Hear Feedback

Page 3: Presentation to RGGI Stakeholder Group September 21, 2005

The RGGI Process

Page 4: Presentation to RGGI Stakeholder Group September 21, 2005

Recap Process

• Governor’s April 2003 Invitation

• July 2003 Launch Announcement

• Action Plan Announced after September 2003 Meeting of RGGI Agency Heads

• Formal Stakeholder Process Initiated on Regional Level

Page 5: Presentation to RGGI Stakeholder Group September 21, 2005

Recap Process

• Meetings of the Staff Working Group

• Meetings of RGGI Agency Heads

• 9 Meetings of Regional Stakeholder Group; 3 Expert

Workshops

• Many Informal Meetings with Stakeholders

• Website: www.rggi.org

Page 6: Presentation to RGGI Stakeholder Group September 21, 2005

Key Program Components

The Model Rule

Memorandum of

Understanding

The Groundwork

Data Assembly

Electric Sector Modeling

Economic Modeling Analysis

Stakeholder Process

Post-Model Rule

Rulemaking

Regional Organization

&

Page 7: Presentation to RGGI Stakeholder Group September 21, 2005

Recap Design Principles

• Reduce CO2 with flexible, market- based program to achieve least cost reductions.

• Create model for federal program.

• Maintain electricity affordability, reliability and fuel diversity.

• Make expandable to other states.

• Build on programs in place.

Page 8: Presentation to RGGI Stakeholder Group September 21, 2005

The Revised SWG Proposal

Page 9: Presentation to RGGI Stakeholder Group September 21, 2005

SWG Proposal

• Start Date of 2009.• Two-Phase Cap—stabilization at

approximately 150 million tons through 2015; 10% reduction by 2020.

• Built-in Review of Program in 2015 to Assess:– Program progress in meeting emissions reductions

goal– Price impacts– Numerical limits on offsets– Imports and associated leakage

Page 10: Presentation to RGGI Stakeholder Group September 21, 2005

• State Allowance Budgets as agreed among states after considering various metrics.

• Offsets– Initial Offset Types:

• landfill gas; • sulfur hexaflouride gas from electricity T&D; • natural gas/home heating oil/propane end-use efficiency;

and• afforestation.

– Additional offset types to be developed– CDM & EU allowances above sustained

allowance price

SWG Proposal

Page 11: Presentation to RGGI Stakeholder Group September 21, 2005

SWG Proposal

• Limit on the Use of Offsets equal to 50% of the Difference between BAU and Cap

Tons

Business as Usual Emissions

Difference between BAU Emissions and Cap

Cap Level

‘09-‘11 ‘12-‘14 ‘15-‘17 ‘18-‘20

3-Year Compliance Periods

Line Dividing Difference in Half

Page 12: Presentation to RGGI Stakeholder Group September 21, 2005

• Allowance Allocations:– 20% “Public Benefit” Allocation

– 5% Strategic Carbon Fund to achieve additional reductions

– Remaining 75% left to states

SWG Proposal

Page 13: Presentation to RGGI Stakeholder Group September 21, 2005

• 20% of Each State’s Budget to Public Benefit Purposes:– “Public benefit purposes may include the

use of allowances to promote energy efficiency, to directly mitigate electricity ratepayer impacts, promote renewable energy technologies, and/or to stimulate or reward investment in technologies that will reduce emissions of carbon dioxide from power generation in the state.”

SWG Proposal

Page 14: Presentation to RGGI Stakeholder Group September 21, 2005

• 5% to Regional Strategic Carbon Fund:– Each state would contribute 5% of its

emissions budget to the fund;– The fund would be administered by a regional

organization to develop additional project-based reductions, in part to offset emissions leakage;

– The fund could also be used to develop new offset standards.

SWG Proposal

Page 15: Presentation to RGGI Stakeholder Group September 21, 2005

• On Emissions Leakage:– States will implement strategic carbon fund

to offset emissions leakage;– States will monitor imports and attempt to

quantify leakage.– As part of 2015 review, states will consider

the significance of any leakage and whether additional measures to address emissions leakage should be implemented.

SWG Proposal

Page 16: Presentation to RGGI Stakeholder Group September 21, 2005

• Other Program Components:– 3-year Compliance Period

– Allow Early Reduction Credits

– Allow Banking

SWG Proposal

Page 17: Presentation to RGGI Stakeholder Group September 21, 2005

Focus on Offsets

Page 18: Presentation to RGGI Stakeholder Group September 21, 2005

Initial Eligibility:• Landfill Gas (methane capture and destruction)• SF6 (capture and recycling)• Natural Gas/Oil/Propane end-use energy efficiency

measures (may include solar thermal)• Afforestation (non-forested to forested state)

Eligibility Broadened based on Sustained Price Trigger:• EU Emissions Trading Scheme Allowances• Clean Development Mechanism CERs

• Additional offsets types to be added over time (sustainable forestry management targeted on priority basis)

SWG Proposal: Offsets

Page 19: Presentation to RGGI Stakeholder Group September 21, 2005

Addressing Additionality:• Specific, detailed criteria for each eligible offset type

applied through a standardized benchmark approach• Criteria applied up-front, limiting discretion in

approval or denial of applications• SWG approach in developing detailed offsets

standards is consistent with general criteria expressed in MA 310 CMR 7.29 (real, surplus, verifiable, permanent, and enforceable)

• SWG will be seeking feedback on detailed criteria as part of draft Model Rule public review process

SWG Proposal: Offsets

Page 20: Presentation to RGGI Stakeholder Group September 21, 2005

Individual offsets standards to include details and specific criteria addressing the following:

• Project eligibility• Emissions baseline determination• Calculation of emissions reductions• Monitoring and verification requirements• Other requirements specific to each offset type (e.g., permanence

and leakage issues for afforestation)

Issuance of credits:• Projects will be pre-approved (eligibility and emissions baseline)• Issuance of offsets credits will be based on demonstrated

reductions (verified emissions reductions/sequestration)• Third-party certification may be required (emissions baseline and

M&V)

SWG Proposal

Page 21: Presentation to RGGI Stakeholder Group September 21, 2005

Stakeholder Feedback:• SWG currently soliciting feedback on content of

specific standards components elaborated• Stakeholders will have opportunity to provide detailed

feedback on standards as part of the draft Model Rule public review process.

• SWG will be seeking feedback on specific proposed additionality and other key criteria for individual offsets types

SWG Proposal: Offsets

Page 22: Presentation to RGGI Stakeholder Group September 21, 2005

Years

SWG Proposal: Offsets

• Limit on the Use of Offsets equal to 50% of the Difference between BAU and Cap

Tons

Business as Usual Emissions

Difference between BAU Emissions and Cap

Cap Level

‘09-‘11 ‘12-‘14 ‘15-‘17 ‘18-‘20

3-Year Compliance Periods

Line Dividing Difference in Half

Page 23: Presentation to RGGI Stakeholder Group September 21, 2005

Calculating the Offsets Limit:

SWG Proposal: Offsets

Business as Usual Emissions (BAU) (Bx)

Cap Level (Cx)Difference between BAU and Cap Level

X1 X2 X3 X4

Page 24: Presentation to RGGI Stakeholder Group September 21, 2005

SWG Proposal: OffsetsCalculating the Offsets Limit:

Ax = [(Bx – Cx)0.5]/Cx

Where:X is the compliance periodA is the maximum offsets percentage applied to the sourceB is the regional total projected BAU emissionsC is the regional total cap level

The overall regional limit will be represented as a percentage of the emissionsbudget in each compliance period. This percentage limit will then be applied atthe source level. For instance, if the limit is 5%, an EGU with reported emissionsof 1,000,000 tons in a particular compliance period could submit 50,000 tons ofoffsets for compliance in that respective compliance period.

Applying the limit as a percentage of reported emissions as opposed to aspecified allowable tonnage number acknowledges that there is a degree ofuncertainty in projecting BAU emissions.

Page 25: Presentation to RGGI Stakeholder Group September 21, 2005

Offsets Limit in Context:• RGGI setting a precedent in applying a limit • Limit expressed as percentage of emissions budget• Regional percentage limit applied at the source (as

percentage of reported emissions - acknowledges degree of uncertainty in projecting BAU emissions)

• Limit is equivalent to following % of annual emissions budget in each compliance period (working proposal):– CP #1 (stabilization phase): 0.4% (550,000 tons/yr)– CP #2 (stabilization phase): 1.4% (2,150,000 tons/yr)– CP #3 (reduction phase): 3.6% (5,250,000 tons/yr)– CP #4 (reduction phase): 8.3% (11,450,000 tons/yr)– Annual average through 2020: 3.3%

SWG Proposal: Offsets

Page 26: Presentation to RGGI Stakeholder Group September 21, 2005

Modeling Offsets: Data

• Supply curves used for LFG, SF6, and afforestation (natural gas end-use not modeled - functionally, modeling assumes these offsets do not exist)

• National supply curves used for LFG and SF6, regionalized based on estimated supply in 9-state RGGI region

• LFG and SF6 supply curves are consistent with EPA national supply curves

• Afforestation supply curve based on analysis conducted by Sampson Group for RGGI

• Conservative RGGI adjustments employed to account for regional supply issues and uncertainty

• Cost adder used (all offsets have positive market cost to account for market incentive & transaction costs - even if project has positive NPV absent RGGI)

SWG Proposal: Offsets

Page 27: Presentation to RGGI Stakeholder Group September 21, 2005

Available Annual Supply:• LFG (2010): 6.4 million short tons CO2e at up to $2.80/ton; 6.9

million short tons at $9.80/ton• SF6: 450,000 short tons CO2e at up to $1.50/ton• Afforestation: 165,000 short tons CO2 at $10/ton; 830,000 short

tons at $20/ton• CDM: $6.50/short ton CO2e - no assumed limit on available

supply

Quantitative Limit: • Tonnage limit applied by run year based on difference between

reference case emissions and modeled cap limits (50%)

Modeling Offsets: Supply Curves

SWG Proposal: Offsets

Page 28: Presentation to RGGI Stakeholder Group September 21, 2005

Questions?