Following a comprehensive two-year program review, the nine Northeastern and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI), the United States’ first market-based regulatory program to reduce greenhouse gas emissions, released an updated RGGI Model Rule and Program Review Recommendations Summary in February 2013.
The changes outlined in the Updated Model Rule and Program Review Recommendations Summary are aimed at strengthening the program by making the following improvements:
- A reduction of the 2014 regional CO2 budget (the RGGI cap) from 165 million to 91 million tons – a reduction of 45%. The cap would decline 2.5% each year from 2015 to 2020.
- Additional adjustments to the RGGI cap from 2014-2020, which will account for the private bank of allowances held by market participants before the new cap is implemented in 2014. From 2014-2020 compliance with the applicable cap will be achieved by use of “new” auctioned allowances and “old” allowances from the private bank.
- Cost containment reserve (CCR) of allowances that creates a fixed additional supply of allowances that are only available for sale if CO2 allowance prices exceed certain price levels ($4 in 2014, $6 in 2015, $8 in 2016, and $10 in 2017, rising by 2.5 percent, to account for inflation, each year thereafter.)
- Updates to the RGGI offsets program, including a new forestry protocol.
- Requiring regulated entities to acquire and hold allowances equal to at least 50% of their emissions in each of the first 2 years of the 3 year compliance period, in addition to demonstrating full compliance at the end of each 3 year compliance period.
- Commitment to identifying and evaluating potential tracking tools for emissions associated with electricity imported into the RGGI region, leading to a workable, practicable, and legal mechanism to address such emissions.
The original RGGI cap was set at 2009 emission levels, with the expectation that emissions would grow. However, emissions have dropped dramatically because of the use of natural gas and other efficiencies in the RGGI states, reducing the demand for the permits. This resulted in depressing the RGGI permit price for carbon credits to under US $2, which is far below the projected US $20-$30. It is anticipated that the lower cap will stimulate interest and raise RGGI permit prices in the next auction. Analyses indicate that the proposed program changes will result in a modest increase in allowance prices, with allowances expected to be priced at approximately US $4 ($2010) per allowance in 2014 and rising to approximately US $10 ($2010) per allowance in 2020. In addition, analysts expect that the proposed program changes will reduce projected 2020 power sector CO2 pollution more than 45% below 2005 levels.
With the release of the Updated Model Rule, the RGGI states now plan to revise their CO2 Budget Trading Programs through their individual state-specific statutory and regulatory processes. Each RGGI state seeks to complete their state specific processes such that the proposed changes to the program would take effect on January 1, 2014. A summary of the program review is available online.