Regional Greenhouse Gas Initiative (RGGI) litigation settled
The New York State Energy Research and Development Authority (NYSERDA), New York State Department of Environmental Conservation (DEC) and New York State Public Service Commission have announced a settlement of Indeck Energy’s challenge to the legality of the RGGI. Indeck and others contended that the RGGI system of auctioning emission allowances puts companies who are locked into long term contracts at a serious disadvantage and challenged New York’s authority to implement RGGI. This litigation and settlement highlight the kinds of issues likely to arise as companies face the prospect and costs of current and future regulatory programs focused on long-term reduction of greenhouse gas emissions.
On December 23rd, a consent decree, approved by all parties to the Indeck litigation, was lodged with the court in which the lawsuit was pending. The New York Attorney General’s Office will receive public comments on the decree until January 29, 2010. After consideration of the public comments, New York will decide whether to move for judicial entry of the consent decree.
Under the decree, Con Edison would pay the cost of additional allowances that Indeck and other parties would need through the end of their long term contracts. DEC “committed in the Consent Decree to maintain the LTC set-aside account under the DEC Rule at 1.5 million allowances annually through 2016.” In addition, the Public Service Commission “agreed to consider approval of a tariff amendment allowing Con Edison to pass through the costs of purchasing allowances [estimated at $2.6 million a year] to its ratepayers.” The settlement announcement suggests the pass through will ultimately be rate neutral because “NYSERDA has agreed in the Consent Decree to use a portion of the RGGI proceeds to fund energy efficiency programs in Con Edison’s rate territory, which such funds will be commensurate with the costs associated with Con Edison’s payment of allowance costs. . .”
Economic and Allocation Advisory Committee (EAAC) established to advise CARB regarding cap and trade program
Already sporting a Climate Action Team, Environmental Justice Advisory Committee, Economic and Technology Advancement Advisory Committee, and Market Advisory Committee, on May 22 the California Air Resources Board (CARB) established another committee known as the Economic and Allocation Advisory Committee (EAAC). The EAAC was established to advise CARB regarding the implementation of the California Global Warming Solutions Act of 2006 (AB 32) and the cap and trade system to be implemented to reduce California’s greenhouse gas emissions. Per AB 32, the cap and trade program is to be developed by January 1, 2011 and implemented in beginning of 2012.
EAAC Purpose and Coordination with Others
The purpose of EAAC includes: 1) evaluating allowance allocation strategies involving free allocation, auction, or a combination of both; 2) advising CARB regarding the costs and benefits to various options involving the distribution of cap and trade allowances/auction revenue; 3) providing CARB revisions to its economic analysis; and 4) preparing a report with its findings by end of 2009.
At its first meeting on July 1, the EAAC and various stakeholders, discussed allocation approaches and including those being considered by the U.S. federal government, Regional Greenhouse Gas Initiative States (RGGI), Western Climate Initiative (WCI) and European Union. A review of the materials from the first meeting clearly indicates the EAAC is very aware that the nature of the allocations and revenue distribution will dramatically influence the program’s success and cost effectiveness.
Furthermore, because of the somewhat unique electricity market in California, which requires significant generation from outside the state, California must ensure that its cap and trade program does not lower emissions in California only to increase them elsewhere (a.k.a. leakage). Per the CARB, December 2008 Climate Change Scoping Plan the EAAC will develop a California cap-and trade program that links with the WCI to create a regional market system. The WCI has formed a Cap Setting and Allowance Distribution Committee (CSAD), and released its recommended design and regional cap and trade program in September 2008. The WCI anticipates that its preliminary budget and cap for its partners (states including California and Canadian Provinces) will be published in first quarter of 2010.
In addition to the linkage with WCI, the federal government is proposing that holders of allowances from California, WCI, and GGI before December 31, 2011 be allowed to exchange them for federal allowances under the program to be develop by the federal government. American Clean Energy and Security Act of 2009 (H.R. 2454), Section 790: Exchange for State-Issued Allowances.
CARB Funding, EAAC Coordination/Efforts, and Economy
CARB estimates that approximately $36 million per year will be needed on an ongoing basis to fund implementation of the cap and trade program. CARB is currently developing fee regulation and expects to take a regulation to the Board in mid-2009 with the aim of collecting fees in 2009/2010 year. That said, the budget, schedules, and EAAC efforts and coordination are likely to be impacted due to the recent July 1, 2009 Executive Order, S-13-09, calling for furlough for CARB employees of 3 days per month starting July 10, 2009 and ending June 25, 2010. The furloughs are due to the “unprecedented” California state budget deficit. California may look to the federal government and others (WCI/RGGI) to take the laboring oar on cap and trade while it tries to reconcile its budget.
New York's participation in RGGI to be reconsidered
New York Governor David Paterson plans to reconsider the rules that enable New York’s participation in the Regional Greenhouse Gas Initiative (RGGI), according to a recent report in the New York Times. Power plants have long contended that the RGGI system of auctioning emission allowances puts companies who are locked into long term contracts at a serious disadvantage. Such generators, argue representative groups such as the Independent Power Producers of New York (IPPNY), cannot recoup the extra costs associated with purchasing allowances. Similar concerns prompted Indeck Energy in January to file a lawsuit challenging New York’s authority to implement RGGI, and alleging that the regulations would essentially impose an unauthorized tax.
News of Paterson’s agreement to reexamine the rules has provoked a sharp response from environmental groups. Luis Martinez, energy attorney with the Natural Resources Defense Council, commented, “Reopening the rule for the Regional Greenhouse Gas Initiative to give power plant owners another bite at the apple is not only unnecessary to address their concerns, it takes us in the wrong direction. Governor Paterson should be fulfilling the needs of consumers, not making deals with industry behind closed doors.” IPPNY has disputed any suggestion that the decision to reopen the rules was the result of behind the scenes maneuvering, stating, “For several years, these concerns were communicated in IPPNY's comments to the Department of Environmental Conservation and to the press and public through multiple press releases during the RGGI rulemaking process. Both during the rulemaking process and after, IPPNY made those same concerns known to the Executive Branch in a manner that is available to every citizen and interest group in this state.”
Environmental groups have submitted Freedom of Information Act requests for Governor Paterson’s schedule and records of any communications with power generator groups and are calling on his administration to release the details of any agreement with energy producers.
New York RGGI Implementing Regulations:
Indeck Energy files lawsuit challenging New York's authority to implement RGGI
Indeck Energy has filed suit against several New York state agencies over their participation in the Regional Greenhouse Gas Initiative (RGGI), a carbon trading system between 10 Northeastern states designed to limit greenhouse gas emissions by power plants. Indeck Energy is the owner of Indeck-Corinth Generating Station, a combined-cycle natural gas plant in upstate New York. RGGI began its first compliance period on January 1, 2009. The Indeck lawsuit alleges that the agencies did not have authority from the New York legislature to implement the system. The complaint further alleges that the multi-state RGGI compact is unconstitutional without Congressional authorization. The complaint names Governor David Paterson, the New York State Department of Environmental Conservation, the New York State Energy Research and Development Authority, and the New York State Public Service Commission as defendants.
According to Indeck, regulations implemented pursuant to the RGGI would essentially impose an unauthorized tax on it. Under RGGI, power plants must buy permits or allowances to cover the amount of carbon they produce. Furthermore, Indeck alleges, it would not have a fair opportunity to recover its costs. Indeck contends that because the RGGI regulations target clean, low-emitting stations with onerous costs, the net result would be to actually increase emissions.
In a statement released to the press, Indeck’s President Gerald F. DeNotto claimed, “The regulations arbitrarily discriminate against a few electric generators that are bound by long-term fixed price contracts.” Furthermore, he contends that “New York’s version of RGGI levies a ‘RGGI tax’ on electric generators.” According to DeNotto, this leaves Indeck’s Corinth plant with “a heavy cost of the allowance tax, and no opportunity to recover it.” These claims echo statements made by DeNotto in public comment hearings regarding RGGI implementing regulations in 2007.
Environmental groups and the New York state agencies named in the complaint have begun to respond quickly to Indeck’s allegations. According to Peter Iwanowicz, director of the Office of Climate Change in New York’s Department of Environmental Conservation, Indeck’s claims are without merit. Iwanowicz claims that his department adopted the RGGI pursuant to authority the legislature had previously provided. As to the issue of the constitutionality of the multi-state compact, Iwanowicz denied that was an issue, noting that each state in the RGGI adopted separate regulations and maintained full sovereignty. State government watchdog group Environmental Advocates of New York (EANY) also issued two statements objecting to Indeck’s claims. Among other statements, EANY notes that the two-year public process to finalize RGGI regulations already resulted in a 1.5 million ton set aside for power plants in long term contracts.
New Jersey publishes draft plan for reducing greenhouse gas emissions
On December 15, the New Jersey Department of Environmental Protection (NJDEP) published for public comment an ambitious plan to reduce greenhouse gas emissions to 1990 levels by 2020, followed by a further reduction of emissions to 80% below 2006 levels by 2050. The draft entitled “Global Warming Response Act Recommendations Report” was authorized by the New Jersey Global Warming Response Act of 2007. The plan emphasizes three core programs – the New Jersey Energy Master Plan, the Regional Greenhouse Gas Initiative and the New Jersey Low Emissions Vehicle program – to deal with the largest green house gas producing sectors: transportation and energy.
The Energy Master Plan establishes a strategy for reducing carbon emissions and energy through investment in renewable energy, requiring adherence to green building guidelines for new construction, establishing fossil fuel throughput standards for electrical generating units, requiring flaring at non-new source performing standards landfills, developing agricultural practices to reduce green house gases, and numerous other recommendations.
The plan targets emissions from on-road gasoline vehicles, on-road diesel vehicles, aviation, marine vessels, railroad and other transportation sources. The report notes that these sources were responsible for about 36% of New Jersey green house gas emissions in 2004. According to the report, on-road gasoline consumption represents the vast majority of those emissions. To reduce emissions in the transportation sector, the report relies heavily upon New Jersey’s Low Emissions Vehicle (LEV) program, which became effective on January 1, 2009, and is modeled after California’s LEV program. Among other requirements, the state’s LEV program requires all sales of new vehicles after January 1 to be California certified.
The plan further relies upon the Regional Greenhouse Gas Initiative which is a cap and trade program among ten Mid-Atlantic and Northeast states to reduce carbon output from power plants. New Jersey participated in the December 17 auction.
The most controversial elements of the plan involve attainment of the 2050 goals. To achieve these reductions, New Jersey plans aggressive action in the key sectors where the greatest GHG emissions reductions can be gained over the long term including: Land Use Planning and Transportation; Terrestrial Carbon Sequestration; Energy Efficiency and Renewable Energy; and New Technologies and Markets. The supporting recommendations include limiting the growth of vehicle miles traveled, between now and 2020, to a rate of growth of no more than 1% per year, holding greenhouse gas emissions from on-road transportation to a total of no more than 40 MMT by 2020, ensuring that over the next 15 years that all vehicle miles traveled are “green” requiring at least 33 miles/gallon and limiting 90% of development to areas already served public infrastructure.
The state will host six meetings in January to solicit public comment on the plan.
House committee releases draft cap-and-trade legislation, challenging state and regional initiatives
On October 7, 2008, John D. Dingell (D-MI), Chairman of the House Committee on Energy and Commerce, and Rick Boucher (D-VA), Chairman of the Subcommittee on Energy and Air Quality, released a discussion draft of legislation establishing a cap-and-trade system designed to cap greenhouse gas emissions. In a memorandum to members of the Committee on Energy and Commerce, Representatives Dingell and Boucher observed:
Since January 2007, the debate over climate change has evolved dramatically, beginning with groundbreaking reports released by the International Panel on Climate Change, which affirmatively settled the question of whether human activity is contributing to global warming. In addition, in the absence of Federal action, some 24 states and several regional organizations have moved towards regulation of greenhouse gases. While the States should be lauded for their progressive stance in addressing the problem, their actions, if not properly coordinated and directed and accompanied by Federal action, could be disruptive to interstate commerce and counterproductive to the goal of limiting national greenhouse gas emissions. (Emphasis added.)
Among other things, the draft legislation proposes limits on state and regional emissions-control programs. For example,
- Section 403(c)(1) would provide the Federal Energy Regulatory Commission with
exclusive jurisdiction over accounts, agreements, and transactions involving a regulated instrument [defined to include emission allowances, offset credits and allowance derivatives], whether inside or outside the United States, that are not subject to the jurisdiction of the Securities and Exchange Commission.
- Section 733(b) would limit the ability of states to implement their own emissions caps:
[N]o State, local, or regional authority may adopt or enforce a program that caps the amount of greenhouse gases that may be emitted or sold, and that uses tradable emission allowances for the purpose of meeting that cap.
- One of two proffered options for Section 816(b) preempts state motor vehicle standards:
(b) [OPTION B] PREEMPTION OF STATE STANDARDS FOR MOTOR VEHICLES.— Notwithstanding sections 177 and 209(b) of this Act, or any other provision of law, no State or any political subdivision thereof shall adopt or attempt to enforce any standard relating to the control of greenhouse gas emissions from new motor vehicles or new motor vehicle engines for which greenhouse gas standards have been established under title II of this Act or for which corporate average fuel efficiency standards have been established under chapter 329 of title 49 of the United States Code. No State shall require certification, inspection, or any other approval relating to the control of greenhouse gas emissions from any new motor vehicle or new motor vehicle engine as condition precedent to the initial retail sale, titling (if any), or registration of such motor vehicle, motor vehicle engine or equipment.
The legislation was not warmly received in all quarters. Fred Krupp, president of the Environmental Defense Fund, cautioned that
[t]he unbending science demands that we reduce global warming pollution far enough — and fast enough — to protect us from the worst consequences of climate change. The near-term targets and timetables in the current draft of the proposal fall far short of that goal.
The potentially preclusive effect of the legislation on existing and prospective state and regional initiatives — among them the Regional Greenhouse Gas Initiative ("RGGI") and the Western Climate Initiative ("WCI") — remains to be seen. Meanwhile, existing initiatives continue to move forward:
- The WCI (a collaboration of seven U.S. states, including California, and four Canadian provinces) released its “Design Recommendations for the WCI Regional Cap-and-Trade Program” on September 23, 2008, followed by the September 30, 2008 release of its "Essential Requirements of Mandatory Reporting for the Western Climate Initiative, Second Draft."
- The week before the House cap-and-trade draft was released, six states participating in the RGGI announced that allowances for the right to emit carbon dioxide from power plants in the northeastern U.S. sold for $3.07 per allowance in the first U.S. greenhouse gas auction. The $38,575,783 in proceeds from the September 25, 2008 auction, operated by World Energy Solutions, Inc., will be distributed to Connecticut, Maine, Maryland, Massachusetts, Rhode Island and Vermont, the six RGGI states that participated in the auction. (The RGGI also includes Delaware, New Jersey, New Hampshire and New York.)
- On October 14, 2008, all ten states of the RGGI initiated the bidding process for the next RGGI allowance auction, set for December 17, 2008.
- The California Air Resources Board ("CARB") released its final draft of a plan designed to reduce emissions to 1990 levels. The “Climate Change Proposed Scoping Plan”, issued on October 15, 2008, includes plans to "develop a cap-and-trade program for California that will link with the programs in the other WCI Partner jurisdictions to create a regional cap-and-trade program."
The release of the draft House bill highlights a looming legislative (and probably judicial) jurisdictional battle over cap-and-trade and other emissions-control programs.
Schwarzenegger proposes climate policy summit to counter federal inaction
Saying he was "tired of waiting for Washington to act," this week California Governor Schwarzenegger announced plans to organize a "climate policy summit" to be held next month and he plans to invite the Governors of all 50 states, as well as leaders of regional and local states and provinces from Canada, China, India, and other countries. Governor Schwarzenegger plans to use the summit to get state leaders to agree on a plan for the reduction of greenhouse gas emissions, which no doubt is intended to put pressure on the next administration to incorporate these regional initiatives into a federal plan of action. The summit is scheduled for November 18 and 19 in Los Angeles.
There is significant momentum going into this summit of state and community leaders who are pressing forward with local and regional-based climate-related initiatives. In the same week as Governor Schwarzenegger announced that he would host the summit, the Regional Greenhouse Gas Initiative (RGGI) – a consortium of 10 Northeastern and Mid-Atlantic states – held its first auction of emission trading allowances for utilities, and the Western Climate Initiative (WCI) – which includes seven Western states and four Canadian provinces – announced a greenhouse gas cap and trade plan.
