EPA CO2 plan adds to RGGI appeal

One of the compliance options in the Environmental Protection Agency's (EPA) Clean Power Plan may appeal to new states looking to join the Regional Greenhouse Gas Initiative (RGGI) CO2 trading program.

RGGI regulators and generators alike are working to understand the EPA's final Clean Power Plan, but it could encourage new entrants into the nine-state program in the northeast US, given the addition of mass-based, or total emissions, targets in the final rule.

"There are elements in the final plan that provide a lot of flexibility to states, and the EPA is looking for ways to facilitate state participation in mass-based trading," RGGI chairwoman and deputy commissioner for energy at the Connecticut Department of Energy and Environmental Protection Katie Dykes told Argus.

The Clean Power Plan requires each state to hit a CO2 target by 2030, with reductions to begin in 2022. EPA is giving states the option to comply with a CO2 rate target in terms of lb/MWh or a mass-based target measured in short tons of total emissions. EPA included the mass-based option in the rule in part to encourage states to use emissions trading, either on their own or by banding together with other states.

The current RGGI states could face a fairly easy path to compliance. Under mass-based targets, the states collectively in 2030 would have a CO2 budget of about 81mn st from existing power plants, only 7mn lower than the program budget of 88mn st this year.

But it is not clear yet whether RGGI will gain more partners given the politics in nearby states, Independent Power Producers of New York (IPPNY) chief executive Gavin Donohue said. On "the likelihood New Jersey or Pennsylvania join RGGI, I would say the short answer is it is too early to tell, but I do not think that is going to happen," he said.

Democrats in the New Jersey legislature continue to pressure governor Chris Christie (R) to rejoin the program, which he withdrew the state from in 2011, while Pennsylvania governor Tom Wolf (D) said during last year's election campaign he would like the state to join RGGI. But while Wolf praised the final EPA rule this week, he did not say whether emissions trading would be a top compliance option for Pennsylvania.

"My administration looks forward to working with industry leaders and legislators as well as citizens to find the right balance and develop and effective and responsible state plan," Wolf said on 3 August, the day EPA finalized the regulations.

Emissions in the region are likely to decline regardless of the EPA plan, given a shift toward renewable generation mandated under state renewable portfolio standards, natural gas-fired generation in lieu of retired coal, and the use of energy efficiency measures.

In the second quarter, CO2 emissions across RGGI fell by 4pc from the previous year, while emissions in 2014 fell by 5pc overall, according to RGGI data.

One concern for generators in the RGGI region is that EPA's plan would allow states to issue allowances for free, while RGGI auctions its allowances and allows non-compliance entities to hold allowances. That could create an economic disparity between generators in RGGI and those outside the program.

"For other states it is a matter of direct allocation or auction limited to generators, which would be another disparity if RGGI generators have to compete with [third parties] not even in the power plant business," IPPNY policy director Radmila Miletich said.

As the price of RGGI allowances has climbed over the past year, reaching about $6/st in recent days, the number of non-compliance entities winning allowances in the program's auctions has also increased. Non-compliance entities at the 3 June auction won about one-third of the allowances. That share has been as high as about 55pc at other auctions held since 2013.

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