RGGI lawmakers must adjust the scheme’s emissions trajectory and change the cost containment reserve rule if they want to ensure that RGGI states meet the EPA’s 2030 power plan CO2 targets, a new report by clean energy think-tank Acadia said.

As many as 41 of the 50 US states are considering using some form of emissions trading to meet carbon targets outlined under the EPA’s Clean Power Plan.

Pennsylvania and Virginia are among states looking at joining RGGI to ensure meeting their targets at the lowest possible cuts. But the north-eastern cap-and-trade scheme must make some crucial adjustments, said the Acadia report, which was supported by 30 green groups.

“RGGI is a model program for additional states to participate in or emulate, and additional reforms will ensure that RGGI helps current states to achieve their own pollution reduction targets [and] to meet or exceed requirements of the CPP,” the report said.

RGGI is scheduled for a review next year, and the first thing lawmakers must do is to extend the cap-and-trade scheme’s target to 2030, Acadia said. Its current goal ends in 2020.

Lawmakers must also change the way emission targets are set, it said. Currently, RGGI’s emissions cap is reduced by 2.5% each year, but if states stick to this, annual cuts will decrease over time and RGGI will likely not achieve the participating states’ mass-based CO2 target by 2030 under the EPA plan.

Instead, the annual emission cuts should be formulated in absolute volumes, according to Acadia.

By setting an annual reduction target of 2.275 million short tons a year, the current RGGI participants would have a CO2 cap of 54.6 million short tons in 2030, compared to 60.7 million if they continue with an annual percentage cut.

By 2050 the difference would be even more pronounced – 9.1 million short tons with an absolute reduction versus 36.6 million with percentage cuts.

“RGGI’s initial cap required a fixed quantity reduction from the baseline year, so returning to this approach would be consistent with RGGI’s intent,” the report said.

COST CONTAINMENT RESERVE

Another element that would have to be changed to guarantee RGGI brings about sufficient emission cuts to meet the EPA targets is the cost containment reserve (CCR), Acadia said.

Under current rules, up to 10 million extra allowances will be released into the market each year if the price rises to a pre-defined level. RGGI permits currently trade around $5.50, while the CCR would be triggered at $6.

“For 2014-2020, the CCR allowances could permit 65 million tons of CO2 emissions in addition to the nominal cap – almost a whole year’s worth of emissions,” said the report.

“RGGI states should consider removing the CCR entirely, but if it is retained, it should be modified to draw allowances from under the cap. This would ensure that aggregate emissions limits are not exceeded, while preserving a mechanism to mitigate price volatility.”

OFFSETS

There is lingering uncertainty as to whether the Clean Power Plan, when rules are finalised later this year, will allow the use of offsets to meet targets.

Acadia said RGGI should aim to keep the market’s current access to offset credits, even if those should eventually be deemed ineligible under the Clean Power Plan.

States could use offsets if they prove that they will neither contribute to nor prevent meeting CPP targets, or use offsets to cut emissions in other sectors than power plants, the report said.

By Stian Reklev – stian@carbon-pulse.com