Regional Greenhouse Gas Initiative Prepares for 2012 Program Review

By Shelley Welton
Deputy Director & Fellow

Yesterday (Tuesday, October 11), the Regional Greenhouse Gas Initiative (RGGI) held one of a series of stakeholder learning sessions devoted to possible program reforms. Tuesday’s session focused on electricity markets and electricity imports, tackling the important questions of whether RGGI should enact an electricity imports control policy, and what shape this policy might take.

RGGI, a collaboration of nine northeastern states (NJ recently announced its intention to withdraw), is a regional cap-and-trade program that aims to lower greenhouse gas emissions in the region’s electricity sector ten percent by 2018. The program began operation in 2009 and will finish its first compliance period this year. In accordance with the Memorandum of Understanding signed by the participating states, and based on knowledge gained to date, RGGI is undertaking a major program review in 2012.

As mentioned, Tuesday’s learning session focused on electricity imports. The need to consider regulating electricity imports—that is, electricity generated outside of the RGGI states but transmitted into the region for consumption—stems from the problem of “leakage.” Leakage in this context refers to the possibility that RGGI, by imposing compliance costs on in-state electricity generators, might cause electricity purchasers in RGGI states to turn to non-RGGI, out-of-state sources that can provide carbon-intensive electricity more cheaply, thereby causing greenhouse gas emissions to “leak” from the RGGI region.

The meeting Tuesday began with a discussion of the extent to which leakage appears to be happening as a result of RGGI. In brief, it appears that RGGI allowance prices to date may have been too low to have caused significant leakage, but that higher allowance prices in the future could contribute to a sizeable problem. A variety of regulatory mechanisms to address the phenomenon were discussed.

Presenters at yesterday’s meeting included persons active in the design of California’s cap-and-trade program and import regulations, as well as representatives from the major electricity markets in RGGI states. Michael Gerrard, Director of the Center for Climate Change Law, gave a presentation on two major legal issues that should be considered in designing import regulations: the possibility of preemption under the Federal Power Act, and the possibility of a challenge under the Dormant Commerce Clause. A discussion of these legal considerations will be the subject of a future blog post, which will also provide more detail on the regulatory mechanisms under consideration.