RGGI releases key items for review of cap-and-trade scheme

Published 04:51 on November 17, 2015  /  Last updated at 04:52 on November 17, 2015  /  Americas, US  /  No Comments

The post-2020 CO2 cap trajectory and possible changes to the scheme’s cost containment reserve and offset mechanism forced by the Clean Power Plan are among issues that will be considered when RGGI begins its 2016 programme review in New York on Tuesday.

The post-2020 CO2 cap trajectory and possible changes to the scheme’s cost containment reserve and offset mechanism forced by the Clean Power Plan are among issues that will be considered when RGGI begins its 2016 programme review in New York on Tuesday.

RGGI Inc., the market operator, released a list of key items ahead of the first of four stakeholder consultation meetings that will guide the programme review, with the last one to be held next summer.

The process will likely be finalised by Sept. 2016, when states must submit their final plan for how to comply with the CPP, or request an extension.

Among the key issues for the review is drawing up annual CO2 emission caps for power plants in the nine RGGI states until 2030.

If the states use a mass-based CO2 target under the CPP, which they expect to do, their 2030 target under the EPA’s plan would be around 79 million tons in 2030 – one million higher than the 2020 cap under RGGI, leaving little incentive to drive new carbon reductions next decade.

“The RGGI states are seeking stakeholder comments on the RGGI states emission goals post-2020 and pursuing additional emission reductions post-2020,” RGGI Inc. said.

It also asked for input on how to treat potentially unused allowances still in the system by the end of 2020, which would be available for banking.

FLEXIBILITY

The market operator also intends to review its two flexibility mechanisms – the cost containment reserve (CCR) and the offset scheme.

Over the past two years, 15 million allowances have been released from the CCR, and if the market price goes high enough, a further 10 million could be released each year until 2020, technically raising the scheme’s overall cap.

The offset mechanism, meanwhile, allows emitters covered by the scheme to use emission cuts from other sources to meet up to 3.3% of their compliance obligation. Even though no offsets have been issued yet, their eligibility may impact the nine northeastern states’ ability to use RGGI as a tool to comply with the CPP.

“Restructuring the CCR design to draw allowances from under the existing cap level would help to ensure future environmental performance by limiting the overall quantity of allowances to a level that reflects reduction targets,” Boston-based Acadia Center said in a report released last month.

“The RGGI states are interested in hearing stakeholder comments on whether any of the CCR design elements should be reviewed and how the CCR and RGGI cap should work together when developing a CPP compliance pathway,” RGGI Inc.’s review paper said.

It also said it would listen to ideas on new project methodologies that could generate offsets as well as thoughts on whether to even continue the mechanism.

NEW MEMBERS

Another issue officials will be looking at is the possibility of allowing new states to join the market.

A number of states in the region that also must comply with the CPP, including Pennsylvania and Virginia, have expressed interest in joining RGGI, although no concrete negotiations have been reported to date.

“The RGGI states are seeking stakeholder comments and suggestions on the possibility of increasing the size of the current RGGI market/RGGI participating states. The RGGI states are seeking comments on possible advantages and how the RGGI states could best pursue this option,” the document said.

RGGI officials in March agreed a set of principles that potential new member states must adhere to if they want to join the market.

TECHNICALITIES

The list of key items for the programme review also contained a number of technical issues that will be considered, partly driven by the need to comply with the CPP. Those included:

– Whether changes should be made to the compliance process, which currently obliges emitters to comply once every third year (though in the interim years they must have allowances in their accounts equalling at least half their emissions).

– Whether the penalty for non-compliance should be changed. Non-compliers must currently hand over three times the amount of allowances they failed to surrender by deadline, but RGGI will consider a penalty more aligned with CPP requirements.

– Whether RGGI should align its compliance periods with those of CPP, for example by extending the fourth period by a year, which would make it run from 2018 through 2021.

– How to address the issue that RGGI covers some sources, such as biomass plants, that won’t be covered by the CPP.

– Whether changes are needed to the auctioning process or the allowance tracking system.

RGGI will initially accept written stakeholder comments until Dec. 4, it said.

By Stian Reklev – stian@carbon-pulse.com

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