Legislation and regulations

1. Updated State air emissions regulations

Regional Greenhouse Gas Initiative

The Regional Greenhouse Gas Initiative (RGGI) is a program that includes 10 Northeast States that have agreed to curtail and reverse growth in their carbon dioxide (CO2) emissions. The RGGI program includes all electricity generating units with a capacity of at least 25 megawatts and requires an allowance for each ton of CO2 emitted [9]. The first year of mandatory compliance was in 2009.

Each participating State was provided a CO2 budget consisting of a history-based baseline with a cushion for emissions growth, so that meeting the cap would be relatively easy initially and become more stringent in subsequent years. The requirements cover 95 percent of CO2 emissions from the region's electric power sector. Overall, the RGGI States as a whole must maintain covered emissions at or below a level of 188 million tons CO2 through 2012, after which a mandatory 2.5-percent annual decrease in CO2 emissions through 2018 reduces the total for covered CO2 emissions in the RGGI States to 10 percent below the initial calculated budget. Although each State was given its own emissions budget, allowances are auctioned at a uniform price across the entire region.

At the most recent RGGI auction in March 2011, 42 million allowances were offered and sold at a clearing price of $1.89 per ton of CO2 [10], just above the price floor. The previous auction in December 2010 also cleared at the price floor, because total emissions from electricity generators did not grow as anticipated.

RGGI's impact on electricity markets is included in the AEO2011 Reference case. Its impact on actual emissions, especially in the early years, is minimal because of its relatively modest reduction targets. Also, it is difficult to capture the nuances of initiatives that cover only single States or groups of States that do not correspond to the regions used in the National Energy Modeling System (NEMS). Therefore, EIA estimated generation for the Mid-Atlantic region and capped emissions from those facilities. Pennsylvania's emissions were not restricted, because Pennsylvania is an observing member and is not participating in the cap-and-trade program or subject to any mandatory emission reductions.

California greenhouse gas reduction program

California is moving forward with its plans to cap and then reverse the growth of State greenhouse gas (GHG) emissions. After surviving a challenge on the ballot in November 2010, the mandatory restrictions begin to take effect in January 2012. After the law was passed and signed, a scoping plan was written that outlines the major components of the regulations [11]. In all, there are 21 programs in the law that will mitigate GHG emissions through a variety of mechanisms-from landfill methane control to proper tire pressurization programs [12]. While AEO2011 incorporates programs from the law, such as the LCFS and 33-percent RPS-where rules are sufficiently specified to allow modeling in the AEO-other programs, such as the carbon cap-and-trade provisions, are not included either because they do not include sufficient specification of implementing regulations or because they include provisions that cannot be modeled in NEMS.

The programs that are expected to generate the highest level of emission reductions are the cap-and-trade system (which is not included in AEO2011) and the 33-percent RPS [13]. The RPS requires investor-owned electricity providers to meet this mandate by 2020. CARB is in charge of the program, although other agencies still have roles in the implementation. The cap-and-trade program is scheduled to begin its first phase in 2012, covering GHG emissions from electricity (including imports) and large industrial facilities emitting more than 25,000 metric tons CO2 annually [14]. Allowances are given away initially, but it is assumed that a market will develop in which allowances will trade for a price as demand grows and the number of available allowances shrinks. (The number of available allowances is scheduled to decline by 2 percent per year, starting from 165.8 million metric tons in 2012.) In 2015, distributors of fossil fuels will be added to the program, and the cap will increase to 394.5 metric tons. In the subsequent 5-year period, the cap will decrease by 3 percent annually. In addition to CO2, the six other most common GHGs emitted (methane, nitrous oxide, sulfur hexafluoride, nitrogen trifluoride, hydrofluorocarbons, and perfluorocarbons) will also fall under the program's jurisdiction.

Several issues remain to be resolved, including finalization of the allowance allocation system, implementation of an auction system, and the possibility of a price cap. The exact distribution of the allowance revenue has not been determined nor has the treatment of natural gas as a fuel. This is all information that needs to be defined before the program can be incorporated in the AEO. A goal of the program is to link to other State trading programs, although the status of neighboring States' programs is uncertain. A San Francisco superior court judge also recently ruled that CARB did not conduct adequate environmental reviews or thoroughly explore cap-and-trade alternatives for meeting the reduction goal in Assembly Bill (AB) 32. This may also delay the program's implementation [15].