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RGGI’s Source-Based Cap-and-Trade Program

MassDEP

April 19, 2007

Nancy L. Seidman

Division Director, MassDEP

Presentation to CA PUC Symposium

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MassDEP

Presentation Outline

• RGGI Background

• Source-based Program Components

• Load-based Program Components

• Linking the two Programs

• Conclusions

Statistics• 3rd Largest

World Economy

• 14% of US GHG Emissions

• 3.2% of World GHG Emissions ( Germany)

RGGI Status

• Model Rule issued with state budgets

see: www.RGGI.org/

• Regional organization being developed

• Energy and Air Quality policy links established

• Starting date – Jan. 1, 2009

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MassDEP

MA RGGI Status

• Rejoined RGGI in January 2007

• Governor says auction allowances

• Proceeds to go towards renewables and energy efficiency

• Final MA regulation early 2008

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Source-Based Programs

MassDEP

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MassDEP

Source-Based Program Design

• Precedents: Acid rain NOx SIP call Permitting

• Monitoring and Tracking – established systems, known costs

• Source-based programs are familiar to Environmental Agencies

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MassDEP

Program Components

• Affected facilities – Size threshold

• Allowance Distribution:

Allocation – Free to affected facilities

or

Auction - Purchased

• Monitoring – EPA requirements

• Tracking – EPA system

• Compliance – EPA and states

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Load-Based Programs

MassDEP

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MassDEP

Program Components

• Affected load

• Allowance Distribution:

Allocation – Free to affected load serving entities

or

Auction – Purchased

• Monitoring – Metering

• Tracking – MWh by ISO

• Compliance – State

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Why CO2 is different

MassDEP

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MassDEP

Issues for Both Programs

• Renewables

• Energy efficiency

• Leakage

These issues are within the purview of Energy Agencies

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MassDEP

Other Issues (2)

• Renewables and Energy Efficiency

• A cap provides an incentive to renewables and efficiency

• Does one system yield more improvement?

• Direct and indirect impacts with load- and source-based programs

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MassDEP

Other Issues (3)

• Leakage

Will it occur?

Tracking the impact

Options for controlling

Impact of a national program

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MassDEP

Linking Systems

• Allocation

• Auctions

• Trading of allowances

• Price impacts on rate payers and facilities

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MassDEP

When Linking Programs Consider:

• Relative stringency of the Caps

• Whether offsets are allowed

• Whether safety valves and price triggers are included

• Leakage: double or “no” counting issues

• All but last item are important for any programs merging

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• Source-based program have precedent

• Environmental Agencies are comfortable with them

• New issues arise with CO2

• Load- and Source-based can be linked

• Federal legislation is needed regardless of the system put in place

MassDEP

Conclusions

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Contact information:

nancy.seidman@state.ma.us

www.mass.gov/DEP

617-556-1020

MassDEP

Thank you very much!

Questions, Comments?

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MassDEP

Traditional Cap and Trade

• Affected facilities surrender one allowance for every ton emitted

• Allowances are allocated for free

• Assumes Facilities make informed decisions:

• Whether and how to reduce their emissions,

or

• Whether buying allowances is more cost-effective

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MassDEP

Traditional Cap and Trade (2)

• Stationary facilities are the best point for regulation of a pollutant of concern, and

• Control equipment is available

• Monitoring is standardized so all tons are equal

• Reporting is standardized for ease of Administration

• Auctioning allowances provides a new twist

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Air Quality and Energy are Inseparable