RGGI gets mixed signals on mingling with other states

Source: Emily Holden, E&E reporter • Posted: Thursday, February 4, 2016

WILMINGTON, Del. — The nine-state Regional Greenhouse Gas Initiative is continuing to weigh linking its cap-and-trade system with other states that will use carbon markets to comply with federal climate change regulations.

RGGI officials yesterday heard a range of views from companies and advocates invested in the program. They ranged from enthusiastic proponents of carbon trading who say the system should set an example for other states to more wary environmental groups worried that expanding trading could water down the program’s climate benefits.

“At our previous stakeholder meeting, we heard kind of from a variety of perspectives that there could be benefits to this, but go carefully and think about how it would work, what the impacts would be on stringency, price, trading, etc.,” said Lois New, a RGGI representative from New York’s Department of Environmental Conservation.

She said the program was hoping for “creative thinking” about how RGGI might be able to open trading to other states and stay effective.

That might mean holding states that want to trade with RGGI to certain standards, according to attendees at the program review meeting.

Many states are considering using carbon trading to meet their individual emissions reduction targets under U.S. EPA’s Clean Power Plan starting in 2022. Trading systems like RGGI essentially allow coal and natural gas electricity generators to pay to take credit for cleaner power so that the entire electricity fleet remains under a total cap on planet-warming emissions (ClimateWire, Jan. 19).

RGGI may only want to trade with states that pursue a very similar trading program by capping emissions from existing and new sources of power, asking power generators to pay for emissions allowances, and, perhaps, aiming for more carbon reductions than EPA requires, according to commenters involved with the system (ClimateWire, Nov. 20, 2015).

An allowance-swapping debate

As a group, the states in the system could meet their Clean Power Plan goals if RGGI eliminates a cost containment reserve that introduces additional allowances into the market when prices rise and if it doesn’t include offsets from other sectors, which EPA does not allow.

Without changes to those provisions, RGGI would not satisfy EPA’s goals, according to recent modeling.

Speakers disagreed yesterday about how to address those elements of the system and also about whether RGGI should seek to achieve greater emissions reductions than 2.5 percent per year. If RGGI made more cuts, generators in its states could be flush with allowances to sell to companies in states with tough goals.

While RGGI seems to be exploring ways to work with other states, program organizers this week suggested further system modeling might assume the nine Northeast states trade only among themselves and don’t swap allowances with other states.

Trading supporters pushed back against that idea. They noted RGGI’s mission statement in the early 2000s was to become the national leader in market-based greenhouse gas reductions and inspire other states.

Andre Templeman, founder of the energy consulting firm Alpha Inception, said RGGI might be able to sway other states to pursue similar systems and environmental goals by offering to trade with them.

“But if you just close your doors and say, ‘We’re not trading with anybody, no how, no way,’ I think the influence you can have on other states is very, very limited,” he added.

Other states depending on RGGI

Franz Litz, who facilitates the Collaborative for RGGI Progress, which represents several utilities and advocacy groups, noted RGGI’s original intent was to “be a model for a federal program and to see RGGI expand to other states and trading with other states,” according to an action plan in 2003.

His group wants to help navigate what states outside of RGGI might need to do in order to be able to trade with the system.

On the flip side, he told RGGI representatives, “as you’re making these choices about design features, you want to be thinking about whether you are making yourselves attractive to other states for trading.”

He said RGGI states shouldn’t rush a decision, but it would be helpful for other states doing planning for the Clean Power Plan to know where RGGI stands.

States may now be making decisions about what kind of Clean Power Plan blueprint to write based on what others will do, and what type of trading systems they think will emerge. Large multistate trading regimes will likely reduce compliance costs, according to experts, so it could be beneficial to follow the crowd.

EPA, however, has said certain kinds of systems can’t trade with others. States that cap emissions cannot trade with states that adhere to an average emissions rate for the power fleet.

Peter Shattuck, director of the Acadia Center’s clean energy initiative, said his group recognizes “that eventually we want to get to integrated markets across the region, across the country.

“Larger markets are more effective. … Eventually, we want to see the whole country get there,” he said.

Environmental justice groups speak out

But Shattuck said RGGI should trade only with states that have the same key elements in the systems, including limiting new source emissions and auctioning allowances.

Some, meanwhile, condemned any form of carbon trading.

Michele Roberts, co-coordinator of the Environmental Justice Health Alliance, said carbon markets under the rule would burden vulnerable communities by allowing coal plants to stay online. She said she opposes expanding RGGI’s reach at all.

The consulting firm ICF International recently finished modeling a draft reference case to show RGGI’s emissions footprint and power mix by 2031. ICF will now start modeling Clean Power Plan compliance scenarios, said RGGI Executive Director Nicole Singh.

RGGI intended to look at mass-based trading within the system and to assume that all states outside the system were also capping emissions, including new sources of power and trading among themselves.

Singh noted that RGGI does not necessarily believe states will take that route, but the initiative wanted to keep the modeling simple. The program may consider looking at other scenarios, based on feedback. Some also noted the modeling should be tweaked to account for recently extended renewable energy tax incentives, which could change the power mix outlook.

RGGI will meet again in April to review the second round of modeling and then in July and in the fall to consolidate feedback and discuss potential state plans ahead of EPA’s Sept. 6 deadline to request a two-year extension to submit a compliance proposal.

States must tell EPA then what kind of plan they are considering and what tools they might use to cut emissions.