by Shelley Welton, Deputy Director
On December 2nd, commissioners, secretaries and directors of environmental and energy agencies from states within the Regional Greenhouse Gas Initiative (RGGI) filed comments to EPA on the agency’s forthcoming regulations for greenhouse gases from existing power plants. RGGI is understandably anxious that the work its participating states have put into developing (and recently, reforming) the program not be lost once EPA issues its new regulations. Accordingly, RGGI’s filing encourages the EPA to design its regulations in a way that allows RGGI’s program to count for compliance, and in a way that rewards states that have taken early action.
This summer, President Obama set forward ambitious deadlines for EPA to regulate greenhouse gas emissions from both new and existing sources under the Clean Air Act. Under § 111(d) of that Act, once EPA decides to regulate a particular pollutant from new sources, states are required to develop plans for how they will regulate existing sources of that pollutant. EPA sets forth criteria that these plans must meet and reviews the plans for compliance. RGGI hopes that EPA will establish criteria that allow its existing cap-and-trade program to double as a compliance mechanism for § 111(d) greenhouse gas regulations.
Despite, or perhaps in part because of, this “survivalist” focus, a few interesting points emerge from RGGI’s filing:
Magnitude of Emissions Reductions: RGGI states hold their program up as an example of the magnitude of cuts that EPA should demand from existing sources elsewhere in the country. According to the filing, RGGI is on track to achieve regional emissions reductions of 50% below 2005 levels by 2020 (an achievement aided in part by the recession and plunging natural gas prices, but nevertheless considerably more ambitious than President Obama’s Copenhagen Pledge of 17% below 2005 levels by 2020).
- RGGI notes that this level of reductions will be achieved through two channels: (1) measures that reduce the demand for fossil fuels, like energy efficiency and renewable energy investments; and (2) measures that increase the efficiency of fossil fuel generation, including retrofitting and switching more to natural gas. It is an open question whether or not EPA will decide to pursue a § 111(d) program that includes both of these channels, as opposed to just the latter. Reductions achievable through increasing the efficiency of fossil fuels alone would presumably be much more modest in scale.
Target-setting methodology: Much of the debate around the anticipated § 111(d) regulations has revolved around whether its targets should be mass-based or rate-based. Under a mass-based system, states would be given a total tonnage of greenhouse gases they could emit. Under a rate-based system, states would be given a pounds/megawatt hour target that their overall fleets had to meet on average (akin to carbon intensity targets).
- As a mass-based system itself, RGGI unsurprisingly advocates that EPA allow mass-based approaches to comply with § 111(d). The filing focuses on the advantage of simplicity that a cap-and-trade, mass-based system provides: compliance can be measured through the overall number of allowances a source has, as compared to their reported emissions. In contrast, rate-based targets require measuring all claimed energy efficiency improvements separately, raising far more monitoring and verification challenges.
- However, RGGI also suggests that it might be most equitable to begin with a single rate-based target for each state, such that states that have already made progress towards reducing emissions intensity could be rewarded for having done so. But the filing emphasizes that if EPA utilizes this approach, it should provide the states with a clear methodology of how they can convert these emissions rates into mass-based emission budgets.
A Regional Focus: RGGI emphasizes the appeal of a regional approach, which allows for regional averaging rather than requiring states to meet assigned limits individually. The filing notes that a regional approach best accords with the current regional design of electricity markets, and that efficiency can be gained by allowing a region to collectively achieve targets by locating cleaner generation where it is most cost-effective and investing in energy efficiency anywhere within the region.
Cap-and-Invest as “Best System of Emission Reduction”: Rather than using the typical moniker “cap and trade,” RGGI bills itself as a “cap and invest” program. In so doing, it highlights the impressive facts that RGGI states have chosen to auction the vast majority of CO2 allowances, and that states have by and large used the resulting proceeds to fund energy efficiency and renewable energy programs. RGGI credits this targeted investment of auction proceeds for much of its success in stimulating economic growth at the same time as it caps carbon emissions. RGGI goes on to suggest that its successes qualify it as a “best system of emission reduction” upon which EPA should base its § 111(d) regulations.[1]
RGGI’s compliance filing makes a strong policy case for designing regulations that allow for states to utilize a regional cap-and-trade approach for compliance. It remains to be seen whether EPA will decide that it is also a legally viable pathway. Opponents are likely to argue that a cap-and-trade system like RGGI, which focuses not on individual plants’ performance but on the power sector as a whole, is simply too broad an approach to be countenanced under the Clean Air Act’s requirement that states establish “standards of performance” based on the “best system of emission reduction.”
In making its case to EPA, might the region also be trying to lay the foundations for a broader RGGI in the future? The complexities of § 111(d) compliance, coupled with the tight timeline Obama has established for beginning to regulate greenhouse gases under that section, might be just the push that previously recalcitrant neighboring states need to opt for this ready-made solution. But that is if, and only if, EPA’s forthcoming regulations—and, almost certainly, the courts reviewing future challenges to these regulations—allow for a regional cap-and-trade approach.
[1] § 111(d) requires that EPA issue regulations that establish a procedure for states to create and implement “standards of performance.” A “standard of performance” is defined as “a standard for emissions of air pollutants which reflects the degree of emission limitation achievable through the application of the best system of emission reduction which (taking into account the cost of achieving such reduction and any nonair quality health and environmental impact and energy requirements) the Administrator determines has been adequately demonstrated.” § 111(a).
