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February 21, 2013
RGGI slashes CO2 cap

Following a “comprehensive two-year program review,” the nine Northeastern and Mid-Atlantic states that make up the Regional Greenhouse Gas Initiative (RGGI) decided to reduce their CO2 budget cap from 165 million to 91 million tons. 

The new cap will be phased in at 2.5 percent per year from 2015 to 2020.  The change will reduce projected 2020 power sector CO2 pollution in the RGGI states more than 45 percent below 2005 levels and ensure that annual emissions in 2020 will be approximately 14 to 20 million tons lower than they would be under the current cap requirements. 

The RGGI states also amended the RGGI Model Rule, which guides RGGI states in implementing their budget trading programs.

Proceeds for clean energy

The RGGI is the nation’s first mandatory market-based regulatory program to reduce GHG emissions.  Under the model rule, each of the participating states has developed legal mechanisms to govern the auctioning and trading of CO2 allowances within those individual states.  A CO2 allowance represents a limited authorization for a power plant to emit 1 ton of CO2.  A regulated plant must hold CO2 allowances equal to its emissions to demonstrate compliance at the end of each 3-year control period. 

RGGI’s first allowance action was held in September 2008, and the current control period ends December 31, 2014.  States invest the proceeds from auctions in “strategic energy programs that further reduce emissions, save consumers money, create jobs, and build a clean energy economy” (Investment of Proceeds from CO2 Allowances).

Wealth of allowances

The comprehensive review indicated actual emissions from regulated power plants are far below the current cap, resulting in a large reserve of allowances held by market participants.  The large reserve is one major reason for lowering of the CO2 cap. 

Under the revised RGGI model, power plants will be able to use their old allowances to meet their obligations before the new cap is implemented in 2014.  From 2014 to 2020, compliance with the applicable cap will be achieved by using both new auctioned allowances and old allowances held by market participants. 

Offsets update

The revised model rule also includes:

  • A new forestry protocol for the offsets program.  The allowable offset percentage would remain at 3.3 percent.  The model rule deletes offset price triggers that raise the allowable percentage of offsets and that allow the use of international CO2 emissions credit retirements.
  • A cost containment reserve (CCR) of allowances that creates a fixed additional supply of allowances that are  available for sale only if CO2 allowance prices exceed certain price levels ($4 in 2014, $6 in 2015, $8 in 2016, and $10 in 2017, rising by 2.5 percent, to account for inflation, each year thereafter).
  • A prohibition on reoffering unsold 2012 and 2013 CO2 allowances.
  • A requirement that regulated entities acquire and hold allowances equal to at least 50 percent of their emissions in each of the first 2 years of the 3-year compliance period, in addition to demonstrating full compliance at the end of each 3- year compliance period.
  • A commitment by states to identify and evaluate potential tracking tools for emissions associated with electricity imported into the RGGI region, leading to a workable, practicable, and legal mechanism to address such emissions.

According to the RGGI, the changes will result in less than a 1 percent increase in the average electricity bill for residential, commercial, and industrial customers.

Click here for information on the latest changes to the RGGI.

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