So, Your State Might Join RGGI – What Does that Mean?

The Regional Greenhouse Gas Initiative (RGGI) is a program that aims to reduce power sector carbon dioxide (CO₂) emissions in participating states.  The following states are currently part of RGGI:

Pennsylvania is finalizing a rule that would lead to its membership in RGGI and North Carolina is reviewing a petition submitted by the Southern Environmental Law Center (SELC) that recommends the state adopt a law to limit CO₂ emissions and join RGGI.  Member state senators are recommending that the U.S. Environmental Protection Agency adopt and expand RGGI to create a national CO₂ reduction framework in order to meet the Biden Administration’s stated national greenhouse gas reduction and de-carbonization goals.  RGGI could be coming to your state – what does that mean?  Read on for the basics.

What are the Basic Elements of RGGI?

RGGI is made up of individual CO2 regulations and budgeting and trading programs in its member states, but does allow purchase of CO2 allowances at RGGI Regional Auctions or through secondary markets. Each state establishes its own rule, with RGGI’s Model Rule as a starting point, and the existing member states must approve a new state’s entry into RGGI. Each state’s rule describes what types of combustion units are covered. In general, a state’s rule is applicable to fossil-fuel-fired electric generating units (EGU) of size 25 megawatts (MW) or greater. However, a state could choose to include industrial/commercial combined heat and power (CHP) sources and biomass-fired EGUs in its program. Several State RGGI regulations provide for some limited exemptions or allowance set-asides to address certain types of electric generation, including industrial CHP. The RGGI states then set budgets for CO2 emissions and regulated sources must purchase allowances from the states in an auction to cover their emissions over a three-year compliance period. Sources can also purchase allowances in a secondary market that allows trading among emitters. The RGGI cap represents the regional budgets and has been adjusted yearly since 2014. The current cap represents a 30% reduction in 2020 CO2 emissions by 2030. Each state determines how to invest the revenue from the sale of allowances. The RGGI allowance price is currently around $8 per short ton of CO2.

What is SELC Proposing in North Carolina?

The SELC petition that the NC Department of Environmental Quality (DEQ) and the NC Environmental Management Commission (EMC) are reviewing includes proposed rule language that is based on, but differs somewhat from, the RGGI Model Rule.  The basis of the petition is that establishing a regulation that includes participation in RGGI is the least expensive regulatory pathway to achieving CO₂ emissions reductions.  The proposed universe of regulatory sources includes not only the EGUs owned by the utilities in the state but also industrial CHP units such as those located at pulp and paper mills and the University of North Carolina, including units that burn biomass.  SELC has proposed a cap on NC CO₂ emissions that reduces annually and represents a 70% reduction from 2005 emissions by 2030 and then a more gradual decline through 2050.

What are the Impacts of RGGI?

From an emissions standpoint, it is obvious that CO₂ emissions from the power sector have decreased over the past 15 years and are continuing to decrease (transportation is now the largest source of greenhouse gas emissions in the U.S. according to U.S. EPA’s 2019 GHG Inventory, at 29%).  It is less obvious whether the emissions reductions in the RGGI states have occurred because of RGGI or would have happened anyway, due to other air regulatory programs that have tightened emissions limits on EGUs, market forces that have made combustion of natural gas more economically attractive than combustion of coal or oil, a natural transition to cleaner energy sources, or aging coal-fired power plants that reached the ends of their lives.  There is also the phenomenon of “leakage” that refers to a transition to more carbon-intensive electricity generated in non-RGGI states.  In other words, although emissions within a RGGI state might decrease, emissions in neighboring non-RGGI states could increase if they are providing power that can be transmitted into the RGGI state.

From an economic standpoint, because there is a cost associated with being covered by RGGI, the cost of generating electricity and the cost of doing business increase.  If non-EGUs are covered by a state’s program, their regulatory burden increases and their capability to expand their operations is constrained.  The RGGI program could inhibit new investments in energy intensive industries because there is a cost associated with burning fuel and emitting CO₂, which could result in more expensive electric generation projects.  Opponents of RGGI also worry that the program will result in early shutdown of power plants in their state, resulting in job losses.  However, RGGI states have been able to utilize revenue from allowance auctions to fund several different types of programs, including energy efficiency measures, green energy projects and utility bill assistance for low-income households.  It remains to be seen whether utilities will shoulder the burden of a nation-wide federal greenhouse gas regulatory program or carbon tax on top of the cost of RGGI in their states.

What to Watch For

If your state is not currently part of RGGI, you should watch for petitions and rulemaking activity associated with limiting CO₂ emissions and joining the program.  Stay up to date with news from your local industry association or chamber of commerce as they are conducting advocacy around these types of programs.  In Pennsylvania, ALL4 worked with our industrial clients to submit information to the agency and limit the impact of the PA RGGI regulation on qualifying energy efficient  CHP, so preparing comments on proposed rulemakings can and does shape outcomes.  We will be watching the activity on a federal level and also in North Carolina and other states closely.  If you would like more information, please contact Amy Marshall at 984-777-3073.