Introduction to the Regional Greenhouse Gas Initiative - ABA YLD 101 Practice Series

By Alison E. Bruenjes

Introduction
The Regional Greenhouse Gas Initiative, or RGGI, is the first mandatory greenhouse gas cap-and-trade program in the country. RGGI was formed by a coalition of ten Northeast and Mid-Atlantic states seeking to reduce CO2 emissions, which contribute to global climate change, through financial incentives. The following is an overview of RGGI's design and a discussion of its future in light of proposed federal climate change legislation.

How does Cap-and-Trade Reduce Greenhouse Gas Emissions?
Cap-and-trade is a mechanism that creates a market in CO2 emissions by attaching a price to the act of releasing greenhouse gases (GHGs) into the atmosphere. First, an overall cap limits the aggregate tonnage of CO2 emissions across the participating states. Second, participating states are allocated a proportional amount of allowances within that cap to auction off. Power plants must purchase allowances to emit CO2. Non-emitting entities such as environmental organizations may also purchase allowances, thereby reducing the total CO2 emitted. GHG reductions are achieved as available allowances decrease as the cap is gradually lowered over time. The increasingly scarce supply of allowances along with the higher cost of emitting CO2 provide an incentive for plants to phase in more efficient technologies and renewable energy sources.

The Planning Process

  1. MOU
    The governors of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, Vermont, Massachusetts, Rhode Island and Maryland committed to RGGI by signing a Memorandum of Understanding (MOU). The MOU outlined the program's goals, organization, and other logistical parameters. In addition, the MOU directed member states to collaborate on a Model Rule. Last, the MOU provided for a "Regional Organization," a non-profit entity comprised of state representatives, to be in charge of facilitating RGGI implementation and tracking its progress. The Regional Organization would have no regulatory or enforcement authority, a role which is left to the individual states. RGGI Memorandum of Understanding, Dec. 20, 2005, available at http://www.rggi.org/docs/mou_12_20_05.pdf.
  2. Model Rule
    By signing the MOU, RGGI member states agreed to establish individual CO2 trading programs through state statutes and regulations, written with guidance from the RGGI Model Rule. The Model Rule was written by state environmental and energy regulators and reviewed by stakeholders, including environmental nonprofits and energy companies. RGGI Model Rule, Dec. 31, 2008, available at http://www.rggi.org/docs/Model%20Rule%20Revised%2012.31.08.pdf. The RGGI states agreed to adopt rules that were materially consistent with the Model Rule, excepting those provisions that expressly provided for flexibility and state discretion. State programs are summarized at http://www.rggi.org/states/state_summaries.

RGGI Implementation

  1. Auctions
    Allowances are periodically auctioned off by the states, beginning in September, 2008. Each state is allotted a share of allowances, as allocated in the MOU, which add up to the regional cap of 188 million short tons of CO2 emissions. One allowance equals permission to emit one ton of CO2, and all electric power plants producing over 25 megawatts of electricity must own enough allowances to cover their emissions. The program seeks to stabilize CO2 levels until 2014, and then reduce levels by 10 percent by 2018. According to the MOU, states must use a minimum percentage of the proceeds from allowance sales to fund energy efficiency projects to further reduce greenhouse gas emissions.
  2. Offsets
    Offsets are off-site projects that reduce GHGs in the atmosphere to compensate for a proportionate amount of power plant CO2 emissions. Power companies may offset up to 3.3 percent of their emissions, or more in the event of a dramatic increase in allowance prices. The MOU set forth a list of approved offset projects, focusing on those that ensure "additionality" or actual emissions reductions. States may agree to add additional offset categories in the future. Approved offset projects currently include:
    • Landfill methane capture;
    • Sulfur hexafluoride capture;
    • Carbon sequestration from afforestation;
    • Emissions reductions via end-use efficiency; and
    • Avoided methane emissions from manure management.
  3. Price controls
    If allowance prices rise to a certain price level, the price will trigger an increase in the percentage of emissions a company may offset. Conversely, a reserve price will be set at each auction, preventing allowance prices from falling below 80 percent of the market price.
  4. Emissions Monitoring
    Each emissions source must provide the state regulatory agency with a CO2 Budget Emissions Monitoring Plan (EMP), which sets forth plant-specific emissions output monitoring procedures. The EMP is incorporated into the source's operating permit, and is similar to Acid Rain Program monitoring requirements. See 40 CFR Part 75. In fact, state agencies may allow plants that are already subject to the Acid Rain Program to comply with RGGI in the same manner.

The Future of RGGI: RGGI and Federal Climate Change Legislation

  1. Regional vs. Federal Programs
    Critics of regional climate change programs like RGGI insist that a national program is necessary to tackle this global problem. Utility companies assert that localized programs are inefficient and force patchwork compliance obligations on them, while Congressional proponents of federal cap-and-trade suggest that multiple regional programs would place an undue burden on interstate commerce.

    Supporters of regional actions like RGGI and the now in development Western Climate Initiative (WCI) point out that the severity of the climate change problem demands immediate action, and states are forced to take the lead by the federal government's inaction. In doing so, RGGI and WCI could slow the impacts of anthropogenic climate change, which scientists predict will include glacial melting, sea rise and severe weather events. In addition, regional programs like RGGI and WCI can work out the technological and logistical kinks in greenhouse gas monitoring and energy efficiency by acting as a laboratory for Congress to learn from.
  2. Preemption
    If Congress passes a climate change bill, RGGI member states face the complicated issue of preemption. Under Article VI of the US Constitution, federal law preempts conflicting state laws. Future Congressional action on climate change is likely to address the issue by expressly exempting or preempting regional and state cap-and-trade programs.

    At the time of this writing in March, 2009, House Energy and Commerce Committee leaders have just released a draft American Clean Energy and Security Act of 2009, which calls for reducing greenhouse gas emissions and includes a federal cap and trade program. The draft includes a clause expressly preempting state caps on carbon dioxide emissions between the years 2012 and 2017, and defines "cap" in a manner that appears to cover the RGGI program: "an absolute tonnage limit on the amount of greenhouse gases that can be emitted by a group of sources over a specified time period, and that does not vary with any other factor, including the number of sources covered, the amount of time the sources operate, and the production of the sources". American Clean Energy and Security Act of 2009 Discussion Draft, March 31, 2009, § 861, available at http://energycommerce.house.gov/Press_111/20090331/acesa_discussiondraft.pdf.

    RGGI member states foresaw the potential conflict between their initiative and future federal legislation and stated in the MOU that if Congress passes a "comparable" federal program, member states should transition into the federal program. The MOU further plans for member states to advocate for "rewards" in the federal program for their pioneering efforts. RGGI Memorandum of Understanding, Dec. 20, 2005, ¶ 6(C), available at http://www.rggi.org/docs/mou_12_20_05.pdf.
  3. Application of Federal Climate Change Legislation to the RGGI States
    To implement a national cap and trade program, the federal government must avoid violating the Tenth Amendment. Thus, instead of instructing individual states to pass the federal climate change regime, much like the RGGI program does with its MOU and Model Rule, Congress must set federal standards for capping CO2 and offer states the option of regulating in accordance with those standards or being preempted by them. This means that RGGI member states will likely choose to maintain their RGGI legislation in conformity with the new federal standards for electric utility emissions, or allow themselves to be preempted by those federal standards. For a discussion of the pros and cons of each option, see A Federal Midwife: Assisting the States in the Birth of a National Greenhouse Gas Cap-and-Trade Program, 22 Tul. Envtl. L.J. 61, 91-102 (2008).

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About the Author

Alison Bruenjes is an attorney in Massachusetts.

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