NO x Trading Success in the Northeast: Observations and Lessons Andrew Aulisi World Resources Institute RGGI Stakeholder Meeting February 16, 2005 New York, NY

2  9 states and DC participated  “Phase 2” NO x trading period ran from  Support from EPA OTC NO x Budget Program launched in 1999 Connecticut Delaware District of Columbia Maryland Massachusetts New Hampshire New Jersey New York Pennsylvania Rhode Island OTC = Ozone Transport Commission

3 Environmental performance was good

4 Emissions down, generation up

5 Additional performance indicators:  Strong compliance > 99%  No evidence of leakage –Average cost of NO x control estimated at $0.1 - $0.2 per MWh, or <1% of the average wholesale price of electricity –No major change in % of net imports to PJM despite growth in electricity demand –Fossil generation in OTC region declined <0.5%, while nuclear increased 5%

6 Market prices mostly below forecasts

7 Economic performance was good  No discernable effect on the states’ economies –GSP up 3.3% annually; NO x program cost ~0.0005%  Nominal effect on electricity prices  Industrial sources were net sellers –lower abatement costs –lowered the overall program cost

8 Allocation:  Apportionment of allowances among states based on heat input –uniform burden among the states  Allocation plans varied from state to state –some used fixed allocations, others had updating –some implemented through legislation, others through regulation –no discernable effect on either compliance or economic efficiency

9 Observations & lessons for GHGs  States can be successful with regional emissions trading  GHG allocation decisions can be left to states  Coordinating body critical to connect monitoring and compliance – doesn’t have to be EPA  NO x cap was health-based, stringent, with steep near- term reductions – not applicable to GHGs

10 Observations & lessons for GHGs  The broader the participation, the better  Help the market to find its balance –Preliminary auction for price discovery –Allow for banking of allowances –Price caps not supported by NO x experience  A regional program can stimulate broader participation over time

11 OTC program facilitated NO x SIP Call Trading OTC NO x Budget Program, NO x SIP Call, Entire state participates in emissions trading Part of state participates in emissions trading starting in 2004 Part of state participates in emissions trading starting in 2007 State participates in emissions trading but can only purchase allowances

12 Thank You Comments & Questions