State and regional climate regulation marches ahead. This issue of Focus on Climate and Clean Energy explores the most recent developments in four programs of particular interest in North America: (1) the Regional Greenhouse Gas Initiative; (2) the California Global Warming Solutions Act of 2006; (3) the Western Climate Initiative; and (4) the Alberta Registry.
Regional Greenhouse Gas Initiative
The ten Northeastern and Mid-Atlantic states1 participating in the Regional Greenhouse Gas Initiative (RGGI) are in the process of adopting legislation and regulations based on the Model Rule finalized January 5, 20072, which is designed to achieve a greenhouse gas emissions reduction of 10 percent below 1990 levels by 2018. The current state of play is:
- Connecticut – Connecticut has published proposed regulations 22a-174-31 and 22a-174- 31a, which would implement the provisions of the Model Rule. Comments regarding the proposed regulations have been solicited and published.
- Delaware – SCR 28 directs the Secretary of the Department of Natural Resources and Environmental Control to convene a workgroup to study how Delaware should address RGGI implementation and report back to the General Assembly by year end.
- Massachusetts – Massachusetts has published proposed regulation 310 CMR 7.70, which would implement the provisions of the Model Rule, and is soliciting comments.
- Maryland – Pursuant to legislation, the Maryland Department of the Environment has created an interagency committee to “on-ramp” Maryland into the RGGI process.
- Maine – LD 1851 directs the Department of Environmental Protection to adopt rules to implement RGGI. The Department has issued a draft rule and solicited public comment.
- New Hampshire – The Department of Environmental Services has commissioned a study from the University of New Hampshire to address RGGI implementation. After stakeholder input, that study will be reviewed by the New Hampshire General Court for potential legislation.
- New Jersey – In addition to participating in RGGI, New Jersey is moving ahead to implement economy-wide climate legislation.A3301 establishes aggressive emissions limits (80 percent reduction by 2050) and directs the Department of Environmental Protection to implement regulations establishing an emissions reporting system by January 1, 2009. The DEP is also required to prepare a report by June 30, 2008, recommending measures necessary to achieve the emissions limits.
- New York – The Department of Environmental Conservation issued a pre-proposal of 6 NYCRR Part 242, which implements the Model Rule. Stakeholder comments were accepted, and the DEC expects to offer a formal proposal later this year.
- Rhode Island – H 5577 requires the Department of Environmental Management to create regulations implementing RGGI.
- Vermont – The Air Pollution Control Division of the Department of Environmental Conservation released a pre-proposal of Vermont’s draft rule implementing RGGI. A formal proposal will be released shortly.
California Global Warming Solutions Act of 2006
In support of the Global Warming Solutions Act (AB 32), which takes effect January 1, 20123 and seeks to reduce statewide GHG emissions to 1990 levels by 2020, Governor Schwarzenegger ordered the Secretary for Environmental Protection to create a Market Advisory Committee (MAC) to advise the California Air Resources Board (CARB) on the development of a cap-and-trade program. The MAC’s final report includes several key recommendations:
- Implementation of a “first-seller” rather than a “load-based” approach for power generators. Under a first-seller approach, the obligation for compliance is on the first seller of power into California electricity markets, whether the responsible entity is a California power plant or an electricity importer. The MAC recommends a first-seller approach because it would involve accurate, stack-based emissions measurement and monitoring requirements and would serve as a good regional model for Western states seeking to address emissions from electricity exports in their state caps.4
- Increasing scope from large emitters to transportation to smaller emitters. The MAC recommends first regulating large point sources (roughly 450 facilities) that account for approximately 40% of GHG emissions. This approach resembles the EU ETS. The road transportation sector would then be added by regulating refiners and importers of gasoline and transport diesel fuel, bringing coverage to 70% of GHG emissions.
- Distribution of Allowances. The MAC recommends that some allowances should be allocated to existing sectors and some to climate-friendly investments, with the remainder auctioned. An increasing percentage of allowances would be auctioned as the program matures.
- Recognition of early action. Early reduction efforts would be recognized if recorded on the California Climate Action Registry before the onset of mandatory reductions.
- Stringent standards-based approach to offsets. The MAC recommends beginning with a short list of acceptable offset project types, perhaps taken from RGGI, and considering new projects upon petition. The MAC departs from RGGI, however, in recommending that no quantity limits be imposed upon offsets as a means for regulated entities to meet their allowance requirements.
- Cost-containment mechanisms. The MAC also departs from RGGI in recommending against the cost-containment mechanism of a safety valve triggered by the market price for allowances. To reduce price volatility, the MAC recommends a three year compliance period and unlimited banking of allowances for use in subsequent periods.
- Linkages with other trading programs encouraged. The MAC encourages linkage with the EU ETS and RGGI markets to increase market liquidity and cost-effectiveness.
Western Climate Initiative
The Western Climate Initiative (WCI), is an initiative among six western states (plus four observer states) and two Canadian provinces5 to develop a mechanism to reduce GHG emissions by 15% below 2005 levels by the year 2020. The WCI plans to develop a mechanism design by August 20086. Emissions reductions activities supported by the WCI will include: (1) regional marketbased mechanisms; (2) activities in sectors including stationary sources, energy supply, residential, commercial, industrial, transportation, waste management, agriculture, and forestry; and (3) reduction in emissions of any of the six standard GHGs monitored. The WCI is keeping a close eye on the MAC report and discussions occurring in California, as well as the progress of RGGI, as they consider design features.
The WCI will have ties to The Climate Registry, a collaboration of numerous states, provinces, and tribes aimed at developing a common greenhouse gas emissions reporting system. The Climate Registry hopes to publish Draft Protocols in October 2007. The categories of offsets and emissions reduction activities accounted for by the Registry are broader than those accepted by CCAR and RGGI. The extent of the integration of Registry’s policies within the WCI program therefore remains an issue to be closely monitored as the WCI design develops.
The province of Alberta was the first North American government to adopt a regulated carbon market. Under 2007 amendments to the Climate Change Emissions Management Act, Alberta required emissions reduction to levels 50% below 1990 levels by 2020. In addition, the Act authorizes the Department of Environment to establish emissions limits for particular sectors and to promulgate regulations establishing “economic and financial instruments and market based approaches directed to specified gas emissions reduction and the sequestration of specified gases.” The Act authorizes the Minister to adopt further guidelines to support the regulations.
Pursuant to the Act, Specified Gas Emitters Regulation 139/2007 was promulgated and took effect on July 1, 2007. Under this regulation, facilities emitting more than 100,000 tons of specified gases must reduce their emissions intensity to 88% of their baseline emissions intensity by 2008. The intensity limits may be met by actual reductions, purchase of offsets, or contribution to the Climate Change and Emission Management Fund. Details concerning the credit trading system, credit registry, and emissions offsets remain to be finalized. 7