Presentation to RGGI Stakeholder Group September 21, 2005.

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Presentation to RGGI Stakeholder GroupSeptember 21, 2005Objectives Recap 2-Year Process RGGI Design Principles Present Details of Latest SWG Proposal to Agency Heads Present Details on Offsets Detail Projected Impacts of Proposal Hear FeedbackThe RGGI ProcessRecap Process Governors April 2003 Invitation July 2003 Launch Announcement Action Plan Announced after September 2003 Meeting of RGGI Agency Heads Formal Stakeholder Process Initiated on Regional Level Recap Process Meetings of the Staff Working Group Meetings of RGGI Agency Heads 9 Meetings of Regional Stakeholder Group; 3 Expert Workshops Many Informal Meetings with Stakeholders Website: www.rggi.org Key Program Components The Model Rule Memorandum ofUnderstandingThe GroundworkData AssemblyElectric Sector ModelingEconomic Modeling AnalysisStakeholder ProcessPost-Model Rule RulemakingRegional Organization&Recap Design Principles Reduce CO2 with flexible, market- based program to achieve least cost reductions. Create model for federal program. Maintain electricity affordability, reliability and fuel diversity. Make expandable to other states. Build on programs in place.The Revised SWG ProposalSWG ProposalStart Date of 2009.Two-Phase Capstabilization at approximately 150 million tons through 2015; 10% reduction by 2020.Built-in Review of Program in 2015 to Assess:Program progress in meeting emissions reductions goalPrice impactsNumerical limits on offsetsImports and associated leakageSWG ProposalState Allowance Budgets as agreed among states after considering various metrics.Offsets Initial Offset Types: landfill gas; sulfur hexaflouride gas from electricity T&D; natural gas/home heating oil/propane end-use efficiency; andafforestation. Additional offset types to be developedCDM & EU allowances above sustained allowance price SWG Proposal Limit on the Use of Offsets equal to 50% of the Difference between BAU and CapSWG ProposalAllowance Allocations: 20% Public Benefit Allocation 5% Strategic Carbon Fund to achieve additional reductions Remaining 75% left to statesSWG Proposal20% of Each States Budget to Public Benefit Purposes: Public benefit purposes may include the use of allowances to promote energy efficiency, to directly mitigate electricity ratepayer impacts, promote renewable energy technologies, and/or to stimulate or reward investment in technologies that will reduce emissions of carbon dioxide from power generation in the state.SWG Proposal5% to Regional Strategic Carbon Fund: Each state would contribute 5% of its emissions budget to the fund; The fund would be administered by a regional organization to develop additional project-based reductions, in part to offset emissions leakage; The fund could also be used to develop new offset standards.SWG ProposalOn Emissions Leakage: States will implement strategic carbon fund to offset emissions leakage;States will monitor imports and attempt to quantify leakage.As part of 2015 review, states will consider the significance of any leakage and whether additional measures to address emissions leakage should be implemented. SWG ProposalOther Program Components: 3-year Compliance Period Allow Early Reduction Credits Allow BankingFocus on OffsetsInitial Eligibility:Landfill Gas (methane capture and destruction)SF6 (capture and recycling)Natural Gas/Oil/Propane end-use energy efficiency measures (may include solar thermal)Afforestation (non-forested to forested state)Eligibility Broadened based on Sustained Price Trigger:EU Emissions Trading Scheme AllowancesClean Development Mechanism CERsAdditional offsets types to be added over time (sustainable forestry management targeted on priority basis)SWG Proposal: OffsetsAddressing Additionality:Specific, detailed criteria for each eligible offset type applied through a standardized benchmark approachCriteria applied up-front, limiting discretion in approval or denial of applicationsSWG approach in developing detailed offsets standards is consistent with general criteria expressed in MA 310 CMR 7.29 (real, surplus, verifiable, permanent, and enforceable)SWG will be seeking feedback on detailed criteria as part of draft Model Rule public review processSWG Proposal: OffsetsIndividual offsets standards to include details and specific criteria addressing the following:Project eligibilityEmissions baseline determinationCalculation of emissions reductionsMonitoring and verification requirementsOther requirements specific to each offset type (e.g., permanence and leakage issues for afforestation)Issuance of credits:Projects will be pre-approved (eligibility and emissions baseline)Issuance of offsets credits will be based on demonstrated reductions (verified emissions reductions/sequestration)Third-party certification may be required (emissions baseline and M&V)SWG ProposalStakeholder Feedback:SWG currently soliciting feedback on content of specific standards components elaboratedStakeholders will have opportunity to provide detailed feedback on standards as part of the draft Model Rule public review process.SWG will be seeking feedback on specific proposed additionality and other key criteria for individual offsets types SWG Proposal: OffsetsYearsSWG Proposal: Offsets Limit on the Use of Offsets equal to 50% of the Difference between BAU and CapCalculating the Offsets Limit:SWG Proposal: OffsetsX4X3X2X1Cap Level (Cx)Business as Usual Emissions (BAU) (Bx)Difference between BAU and Cap LevelSWG Proposal: OffsetsCalculating the Offsets Limit:Ax = [(Bx Cx)0.5]/CxWhere:X is the compliance periodA is the maximum offsets percentage applied to the sourceB is the regional total projected BAU emissionsC is the regional total cap levelThe overall regional limit will be represented as a percentage of the emissions budget in each compliance period. This percentage limit will then be applied at the source level. For instance, if the limit is 5%, an EGU with reported emissions of 1,000,000 tons in a particular compliance period could submit 50,000 tons of offsets for compliance in that respective compliance period.Applying the limit as a percentage of reported emissions as opposed to a specified allowable tonnage number acknowledges that there is a degree of uncertainty in projecting BAU emissions.Offsets Limit in Context:RGGI setting a precedent in applying a limit Limit expressed as percentage of emissions budgetRegional percentage limit applied at the source (as percentage of reported emissions - acknowledges degree of uncertainty in projecting BAU emissions)Limit is equivalent to following % of annual emissions budget in each compliance period (working proposal):CP #1 (stabilization phase): 0.4% (550,000 tons/yr)CP #2 (stabilization phase): 1.4% (2,150,000 tons/yr)CP #3 (reduction phase): 3.6% (5,250,000 tons/yr)CP #4 (reduction phase): 8.3% (11,450,000 tons/yr)Annual average through 2020: 3.3%SWG Proposal: OffsetsModeling Offsets: DataSupply curves used for LFG, SF6, and afforestation (natural gas end-use not modeled - functionally, modeling assumes these offsets do not exist)National supply curves used for LFG and SF6, regionalized based on estimated supply in 9-state RGGI regionLFG and SF6 supply curves are consistent with EPA national supply curvesAfforestation supply curve based on analysis conducted by Sampson Group for RGGIConservative RGGI adjustments employed to account for regional supply issues and uncertaintyCost adder used (all offsets have positive market cost to account for market incentive & transaction costs - even if project has positive NPV absent RGGI)SWG Proposal: OffsetsAvailable Annual Supply:LFG (2010): 6.4 million short tons CO2e at up to $2.80/ton; 6.9 million short tons at $9.80/tonSF6: 450,000 short tons CO2e at up to $1.50/tonAfforestation: 165,000 short tons CO2 at $10/ton; 830,000 short tons at $20/tonCDM: $6.50/short ton CO2e - no assumed limit on available supplyQuantitative Limit: Tonnage limit applied by run year based on difference between reference case emissions and modeled cap limits (50%)Modeling Offsets: Supply CurvesSWG Proposal: OffsetsQuestions?Add the big pieces on the left (Title and Subheadings) and right from the brick chart.

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