Regional and State GHG Reduction Initiatives For U

Regional and State GHG Reduction Initiatives For U. S. EPA Region I (Boston) March 25, 2009 Dr. Jonathan Raab Associates, Ltd. and MIT www. raabassociates. org

How States Approach GHG Reduction Task (if at all) Setting reduction targets p Comprehensive GHG planning and implementation to meet targets p Cap and Trade systems (RGGI, WCI) p Other Energy/Environmental Policies/Programs w/GHG benefits (Renewable Portfolio Standards, System Benefit Charges for efficiency and renewables, etc. ) p 2

Vermont’s Electricity Future Project (2007): How Concerned Are You About Each of the Following? Regional Workshops Rank Deliberative Polling Rank Greenhouse Gases 8. 5 1 8. 6 1 Radioactive Wastes 8. 1 2 7. 8 3 Other Air Pollution 7. 8 3 8. 4 2 Damage to River Habitats from Hydro 5. 4 4 6. 4 4 Visual Impacts of Wind 1. 7 5 3. 0 5 0 = not at all concerned 10 = extremely concerned 7

GHG Reduction Targets NEG/ECP (6 NE states)— 1990 levels by 2010, 10% below by 2020, 75% below eventually (now assumed 2050) p WCI (6 Western states)— 15% below 2005 by 2020 p Numerous other states have similar targets p 4

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Rhode Island Greenhouse Gas Stakeholder Process 2001 -2007 (longest lasting state GHG stakeholder process in U. S. )

Sponsors/Hosts RI Department of Environmental Management RI State Energy Office Facilitators/Mediators Raab Associates, Ltd. Consultants/Modelers Tellus Institute Other Independent Consultants Funders U. S. EPA (convening $) IECR (early plan/implementation $) RI Department of Environmental Management and State Energy Office RI Foundation (small education grant) 10

Original Stakeholders Apeiron Institute for Environmental Living Associated Builders and Contractors Audubon Society of Rhode Island Brown University Business Roundtable Conservation Law Foundation Department of Administration Narragansett Electric Nat. Fed’n of Independent Businesses New England Gas Company Northern RI Chamber of Commerce Oil Heat Institute Providence Chamber of Commerce RI Builder's Association RI Dept. of Environmental Management RI Dept. of Transportation RI Public Interest Research Group RI Public Transit Authority RI Division of Public Utilities and Carriers RI Society of Environmental Professionals RI State Energy Office RI Statewide Planning Save The Bay Sierra Club Sustainability Coalition The Energy Council of Rhode Island Ex-Officio Governor's Policy Office RI House, Policy Office RI Senate, Policy Office US EPA US DOE 11

RI GHG Original Structure 12

Projecting a Baseline by Sector Notes: This chart shows energy sector emissions with emissions from electric generation allocated among the four tertiary sectors (industry, transport, commerce and residential) based on the electricity consumed in those sectors. 13

Selecting Targets Selected NE Governors’/ Eastern Canadian Premiers’ Targets for now. p 2020 target 33% below BAU baseline p By 2010: reduce to 1990 levels By 2020: 10% below 1990 level Beyond: Reduce to nonthreatening levels 14

Developing Options 52 Options Generated 49 Consensus 3 Non-consensus All options include estimated Carbon Saved, Cost of Saved Carbon, and Co-benefits 15

Comparing Options to Baselines and Targets 16

to GHG Savings vs. Baseline in 2020 17

Contribution of Options to GHG Savings vs. Baseline in 2020 “All Other” Measures Design 2000 Efficient Residential Cooling Tax Credits for Energy Efficiency Retrofit Program Efficient Lighting & Appliances Compact Floor Space Fuel Switching: Electric to Fossil Public Facilities Initiative Local Govt. Vehicle Fuel Efficiency Convert Croplands to Wetlands Solar Water Heating Low Input Agric Energy Star Homes Solar PV Cells Program Gas Air Conditioning 18

Net Economic Benefits and GHG Savings vs. Baseline 19

Buildings & Facilities Appliances Standards Legislation p Executive Order Requiring LEED Standards for New State Buildings p CHPS for New Schools went to state school regents last week p Environmentally Preferable Purchasing Executive Order Awaiting Release From Governor p Natural gas DSM started at $3 -6 million/year as part of LCP legislation. p Been working for 5 years on trying to develop DSM for oil uses (more difficult as less regulated). p 20

Energy Supply p p p RPS Becomes Law in 2004 n Requires 16% of Rhode Island’s electricity demand supplied by renewable energy by 2020 Least Cost Procurement Law 2006 n Requires utility to pursue (all) cost effective energy efficiency options in procuring electricity for customers. n Legislation pushed by unique coalition of business and environmental organizations from RI GHG process. n Only CA and now MA currently have similar laws. Regional Greenhouse Gas Initiative n 9 -State Carbon Cap and Trade Effort n RI Governor initially rejects, then signs 2/5 -07 (Note: Neither RGGI nor LCP specifically included in original GHG Plan) 21

Transportation and Land Use Rules adopting CA-LEV p Energy Efficient State Fleets Executive Order p Worked on ‘feebate” Program Design for Light Duty Vehicles for 3 Years p Stakeholders adopted CA Pavley law (instead of feebates) p 22

Million Short Tons C eq. Four Scenarios’ GHGs Compared to Target 2020 Savings vs. Baseline: I+F+UD = 1. 41 I+F = 0. 78 I= 0. 64 NEG/CP = 1. 26 Targets are: 1990 levels by 2010 10% below 1990 by 2020 24 24

Million Short Tons C eq. RI GHG Savings By Option in 2020 vs. Baseline 25 25

Discounted Dollars v. s Baseline Million Cumulative Net Savings of Three Scenarios Notes: Results highly sensitive to fuel prices and other assumptions. AEO 2007 fuel price projections rather conservative (low) – higher prices = higher savings. Does not include externality costs (would also increase savings) 26

Discounted Dollars v. s Baseline Million Cumulative Sensitivity: AEO 2007 Prices +50% in 2020 Net Savings of 3 Scenarios Notes: Sensitivity assumes 50% higher prices for Natural Gas and Gasoline in 2020. Benefits increase by $400 m for I+F scenario and by ~$700 m for I+F+UD scenario. 27 27

EPA Award p. On May 4, 2005 the US EPA gave the RI GHG Stakeholder Group its “Outstanding Climate Protection” Award in a ceremony in Washington D. C. 28

Regional Greenhouse Gas Initiative (RGGI) 29

Environmental Cap and Trade Programs p p p Clean Air Act Amendments of 1990 included federal “cap and trade” provision for sulfur dioxide S 02 1999 nine Northeast and mid-Atlantic states and D. C. implement a NOx cap and trade program (model rule, left allocation within a state to state) Programs considered successful: n n Lowering the cost of emissions reduction compared to “command control” For NOx program emissions were lower than caps 30

How Does GHG Differ From Other Pollutant w/Respect to Cap and Trade Approaches Less localized impacts make it perhaps even better candidate for “cap and trade” p For electricity sector at least, lack of tailpipe solutions create additional challenges p 31

RGGI History April 2003, NY Governor George Pataki sends invitation letter to governors in northeast to join RGGI. p All 6 New England states join, along with NY, NJ, and DE—equal to world’s 4 th largest economy (bigger than Germany) p MD and PA (the two big coal states) send staff to observe but don’t formally join. p 32

RGGI Goals p p p p Cap and trade for electricity sector, other sectors to follow eventually. Uniformity across the participating states; Building on existing successful cap-and-trade programs; Ensuring that the program is expandable and flexible, Allowing other states or jurisdictions to join in the initiative; Starting the program simply by focusing on a core cap -and-trade program for power plants; and Focusing on reliable offset protocols (i. e. , credits for reductions outside of the power sector) in a subsequent design phase. 33

RGGI Structure p p p Staff Working Group—Partnership of environmental and energy agencies. SWG agrees to form Regional Stakeholder Group as “sounding board” (Raab Associates, Ltd. hired for process design and facilitation—possible mediation SWG). Extensive modeling n n IPM electricity sector model (ICF) REMI economic impacts model 34

Regional Stakeholders p 23 members n n Environmental (8)—ENE, PIRG, CLF, PACE, NRDC, ED, UCS, ACEEE Energy related companies (8)—AES, Constellation, Dominion, Entergy, Keyspan, National Grid, NEGT, NU Business (5 )—International Paper, UTC, NE GHG Coalition, NY Coalition, NE Council Consumer Advocates (2)—ME, PA 35

RGGI Resource Panel Members p p Purpose to advise both Regional Stakeholders and SWG Members: n n n ISO New England, PJM, NY ISO NESCAUM Regulatory Assistance Project Pew Center and World Resources Institute and RFF Natsource 36

Regional Stakeholder Process Run in parallel to SWG deliberations p Met for 9 day-long sessions between April 2004 and September 2005 p SWG presented proposals and posed questions p Stakeholders provided structured feedback p Usually around 100 people in room for each meeting, let public speak as time allowed p 37

Seven States Sign RGGI MOU p p p Signed December 20, 2005—NY, NJ, DE, CT, NH, ME, and VT MA and then RI back out last minute, but joined again after Governor Patrick took office Lays out specific agreements on each of major topical areas Commits to put out “model rule” –issued August 15, 2006. Commits to have implementing laws, regulations or both in place by Dec. 31, 2008 for 1/1/09 start. 39

Cap Level Stabalize at current levels from 2009 to 2014 -- Regional base cap 121 million short tons p Then 2. 5% reduction/year to 10% reduction by beginning 2019 p Applies to all generators > 25 MW p 40

Apportionment Among States p Apportionment “negotiated” among the states, largely based on average emissions over several years (millions of tons) n n n n p CT DE ME NH NJ NY VT 11 8 6 9 23 64 1 MOU specified that if and when MA joins gets 23, and if and when RI joins gets 3 and whole regional cap is raised by that much. 41

Allocation of Allowances At least 25% to be auctioned for consumer benefit or strategic energy purposes (up to each state) p All or almost states subsequently decided to auction 100% for consumer benefit p 42

Flexibility Mechanisms p Offsets n n n Allowable offsets—landfill gas; SF 6; gas, oil, and propane energy efficiency; afforestation; methane capture from farming. More types to be added later If allowances <$7 can use offsets from anywhere in U. S. (w/cap and trade) at 50% discount to meet 3. 3% of emissions. If allowances >$7 but <$10 at 1: 1 ratio to meet 5% of emissions. If allowances >$10 can use international offsets up to meet 10% of emissions. 43

Flexibility Mechanisms (continued) Demonstration of compliance every 3 years p Early reduction credits p Banking allowed for allowances, offsets, and early reduction credits p 44

Modeled Impacts p p Numerous modeling Stakeholder calls—often somewhat contentious (e. g. , natural gas price forecast, renewables from RPS). IPM modeling found n n p 2021 allowance prices $2, rate impacts 1%, but imports increase by >25% reducing GHG savings (“leakage”). If assume can double energy efficiency through auction $, all 3 factors reduced substantially. REMI modeling found n Very small rate impacts and impacts on economy (positive if double energy efficiency) 45

Other Provisions p p p Agree to form regional organization to track emissions and allowances, offsets development and implementation, etc. Provisions to expand to other states (beyond MA and RI) Form a multi-state working group on leakage Comprehensive review in 2012 Pursue complimentary energy policies 46

Post-MOU RGGI Developments p p p Maryland Legislature passes law to join RGGI August 15, 2006 RGGI puts out 163 page model rule 2006 Vermont Legislation requires auctioning of 100% of allowances for “consumers”, NY follows with similar requirement January 18, 2007 Massachusetts Governor Patrick signs RGGI February 5, 2007 Rhode Island Governor signs RGGI Other states move toward 100% auction 47

Supply-Side vs. Load-Side Carbon Cap and Trade Program RGGI obligation is on electricity suppliers p California and Oregon committed to placing obligation on “load serving entities” (e. g. , utilities) p Supposed advantages (see Cowart paper) p n n Directly incentivizes energy efficiency Reduces leakage issues 48

RGGI Auctions September 2008 • 12. 5 million allowances offered for sale • 6 states • 51. 8 million allowances requested • 80% bids by compliance entities • $3. 07 clearing price • $39 million proceeds December 2008 • 31. 5 million allowances offered for sale • 10 states • $3. 38 clearing price • $107 million proceeds March 2009 • 31 million 2009 (plus 2 million 2012) allowances offered for sale • $3. 51 2009 clearing price ($3. 05 2012) • $117 million proceeds 49 Source: RGGI

RGGI March 2009 Auction 50