IETA RGGI Certification Final May 3 2011

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SUPERIOR COURT OF NEW JERSEY

LAW DIVISION MERCER COUNTY

MARK LAGERVIST,

Plaintiff

v.

NEW JERSEY DEPARTMENT

OF ENVIRONMENTAL PROTECTION,

And MATTHEW J. COEFFER, in his

Official capacity as the Custodian of

Government Records,

Defendants.

DOCKET NO: MER-L-2185-10

CERTIFICATION OF DAVID HUNTER

IN SUPPORT OF THE DEFENDANTS

MOTION TO DISMISS

I, David Hunter, of full age, hereby certify as follows.

1. I am currently the United States Director of the International Emissions Trading

Association (IETA), a position I have held since August, 2007.

2.

IETA is dedicated to the establishment of market-based trading systems for greenhouse

gas emissions that are demonstrably fair, open, efficient, accountable, and consistent

across national boundaries. IETA has been the leading voice of the business community

on the subject of emissions trading since 2000. Our 155 member companies include some

of North America’s, and the world’s, largest industrial and financial corporations—

including global leaders in oil, electricity, cement, aluminum, chemicals, paper, and

banking; as well as leading firms in the data verification and certification, brokering and

trading, offset project development, legal, and consulting industries. A list of IETA

members is included in attachment A and is also available at www.ieta.org.



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3. A number of IETA members have participated in the quarterly RGGI CO2 allowance

auctions.

4. I make this certification in support of New Jersey’s motion to dismiss and brief filed in

response to the complaint captioned Lagerkvist v. New Jersey Department of

Environmental Protection, Docket No. ME-L-2185-10.

5. I understand that New Jersey Department of Environmental Protection has received a

request under its public records law seeking disclosure of information related to the first

eight RGGI CO2 auctions, including, a) the names of all bidders, b) the price of each bid,

and c) the quantity and type of CO2 allowance sold to each successful bidder.

6. The purpose of this certification is to demonstrate that the information requested by the

plaintiffs, including the names of bidders, the quantity and price of individual bids, and

the reward of allowances is proprietary information and should remain confidential.

7. Releasing such specific information about bidders could adversely affect participants,

facilitate market manipulation, and make regional RGGI allowance auctions less

competitive.

8. Publicly releasing information related to bidding strategy and the quantity and price of

allowances awarded could allow competitors to more accurately estimate a firm’s cost

structure and use this information to their advantage.

RGGI Market & Auction Characteristics

9. RGGI is unlike any environmental compliance market that is currently operating in the

U.S. or elsewhere, in that the vast majority of allowances are obtained through the

auction process instead of directly allocated to covered sources. Between 85 and 90



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percent of all RGGI allowances available in the first compliance period (2009 – 2011)

will be offered at auction.

10. In contrast, EPA auctions less than 3 percent of all available SO2 allowances on an annual

basis. The remaining allowances are allocated to covered sources based on historical

emissions. Therefore, the useful market information that is revealed by releasing bidder

information is minimal as compared with releasing the same type of data for RGGI

auctions. Given the relatively small quantity of allowances available, colluding to alter

the Acid Rain Program auction clearing price would also have little or no impact on

allowance prices in the secondary market.

11. Under the Acid Rain Program auction, participants are awarded allowances at the price of

their bid instead of at a uniform price as in the RGGI auctions. These two formats result

in different optimal bidding strategies for the auction participants.

12. Furthermore, it is acceptable to release data on account holdings for the Acid Rain

Program because these are predominantly determined by historical emissions, which are a

matter of public record. RGGI allowance holdings are based primarily on auction

purchases, which directly figure into a company’s projected levels of electricity

generation.

13. Even though current and future vintage RGGI allowances have cleared at the auction

reserve price for the past three and five auctions, respectively, market manipulation

remains a real risk given the potential for policy changes that could affect the future

availability of allowances.

Potential Negative Impacts from Disclosure of Confidential Information



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14. The RGGI allowance auctions and RGGI allowance market have functioned adequately

to date with the information provided in the RGGI Market Monitoring Reports and

through the RGGI CO2 Allowance Tracking System.

15. Revealing the bid prices would essentially reveal company specific bidding strategy.

While this is deemed by IETA as confidential and proprietary information as noted

above, if this information were revealed the competitiveness of the auctions would also

be compromised.

16. Revealing the quantity of allowance held by or awarded to each market participants could

place some companies at risk if they fail to purchase enough allowances directly at

auction in order to cover their regulatory obligations.

17. By publicly releasing both the quantity of allowances held and the total compliance

obligation (emissions), third-parties would know which companies have the greatest need

for allowances. This could provide allowance sellers with the means to employ price

discrimination in over-the-counter allowance sales.

18. If RGGI were to release the price of each bid that each participant submitted in the

allowance auction, this would likely result in a less competitive auction.

RGGI Information Policy & State Laws

19. Each RGGI auction notice explicitly instructs participants not to publicly release

confidential information related to participation in the auction, including: qualification

status, bidding strategy, bid price or quantity information, and information related to the

participant’s financial security. Forcing release of this information, even well after the

auctions are completed, would violate this stated policy.



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20. For the reasons discussed above, the RGGI auction information policy should not be

compared with that of EPA for the Acid Rain Program SO2 allowances auction. A more

apt comparison is to California’s impending cap-and-trade program, which is scheduled

to start in 2012. California’s approved regulations include confidentiality provisions that

are similar to those outlined in the RGGI auction notices. California also intends to

implement a single round, sealed bid auction format, the same type used for RGGI

auctions.

21. Specifically, the California regulations prohibit auction participants from publicly

releasing information about their auction participation, including: qualification status;

bidding strategy; bid price or bid quantity information; information on the financial

security it provides to the auction administrator; and other information identified in the

auction application by the auction administrator.

22. Furthermore, the California regulations only permit the state to release the following

information once an auction is complete: the names of bidders, the auction settlement

price, and aggregate or distributional information on purchases while withholding the

names of entities that were awarded allowances. These requirements will likely result in

the release of information that is similar to that made publicly available under current

RGGI practice.

23. Releasing additional bidder information would also cause states to violate legislative

commitments to private companies to withhold confidential information, either explicitly

or implicitly. Bidding strategy and allowance awards would generally be exempt from

public record laws as a type of confidential business information for the reasons



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discussed above. In addition, the Massachusetts Green Communities Act of 2008

explicitly prohibits the release of company-specific auction and allowance information.

I certify that the foregoing statements made by me are true. I am aware that if any of the

foregoing statements made by me are willfully false, I am subject to punishment.

DATE: April 20, 2011

David Hunter

Documents

IETA RGGI Certification Final May 3 2011