Does the CPP Go Far Enough? RGGI Seems to Say “No”

The Northeastern and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI), the nation’s first market-based emissions trading program to reduce greenhouse gas pollution, submitted joint comments on November 5, 2014 to the United States Environmental Protection Agency (EPA) supporting the proposed Clean Power Plan (CPP). This position in and of itself is noteworthy, given what has been largely critical or non-supportive public filings by utilities and state regulators, including lawsuits challenging the enforceability of the CPP. However, what may be the most important take-away from the RGGI filing is the reiteration of the support for a regional (as opposed to state-specific) approach toward CPP compliance—and using RGGI as a national template. (In previous blogs and articles, WMP has encouraged our clients to investigate regional approaches, particularly for those utilities that have generating assets in multiple states).

The Northeast and Mid-Atlantic states participating in the second RGGI control period (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont) have implemented the first mandatory market-based regulatory program in the U.S. to reduce greenhouse gas emissions. The 2014 RGGI cap is 91 million short tons. The RGGI cap then declines 2.5 percent each year from 2015-2020.  RGGI is composed of individual CO2 budget trading programs in each state, based on each state’s independent legal authority. A CO2 allowance represents a limited authorization to emit one short ton of CO2, as issued by a respective state. A regulated power plant must hold CO2 allowances equal to its emissions to demonstrate compliance for each three-year control period. RGGI’s second control period began on January 1, 2012 and extends through December 31, 2014.

The nine Northeastern and Mid-Atlantic have already achieved a 40 percent reduction in regional CO2 emissions from the electricity sector, compared to 2005 levels. The CPP requires these states to reduce their emissions by a combined 38 percent. The RGGI states say this shows that greater emissions cuts are possible, especially in states that haven’t yet implemented programs to reduce carbon pollution.

Key to the RGGI filing is the claim that market-based carbon reduction programs achieve cost-effective emission reductions and trading programs, like the one in RGGI, can provide a simple, transparent, and verifiable system for compliance that allows states to work within the existing regional nature of the electricity grid. Today, power sector carbon emissions in the RGGI region are more than 40 percent below 2005 levels, while the regional economy has grown by 7 percent. Under RGGI’s existing program, regional emissions are projected to decline by 50 percent by 2020. According to the filing, the significant reductions achieved in the RGGI states over a shorter period of time demonstrates that under the CPP more substantial cost-effective emission reductions are possible, particularly from those states that have not yet developed robust energy efficiency and renewable energy programs.

Along with the regional approach, RGGI is promoting its market-based strategy as opposed to heavy state regulation of CO2 reductions and claiming that, along with a more rapid timetable for emissions reductions, market-based rules will help support—job creation and lower energy bills. The RGGI filing also challenges the EPA to make several revisions to the CPP to ensure that state targets are verifiable, transparent, equitable and enforceable.

Will the EPA lean toward RGGI’s recommendations? It’s hard to say at this point, but given the agency’s willingness to entertain additional commentary (as evidenced by the extended comment period) and the fact that RGGI arguably represents the most successful CO2 reduction platform in the country, it is likely that RGGI’s comments will be taken very seriously.

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