Carbon Caps and an Oregon RPS: Comments to the Carbon Allocation Task Force Bill Drumheller Oregon Department of Energy June 1, 2006

Background Carbon Allocation Task Force stems from Recommendation GEN-2 of Governor’s Advisory Group on Global Warming. RPS recommendation listed as GEN-2a. RPS intended to be a subset of carbon cap as, along with the public purpose charge, “tools to meet a greenhouse gas allowance standard and overall state CO 2 goals.”

Renewable Energy Working Group Formed by Governors Office and ODOE in Fall 2005 and Winter 2006 as called for in Renewable Energy Action Plan. Initially only to “consider” an RPS. Governor charged REWG to “develop” an RPS in State of the State speech, “Action Plan for Energy” and subsequent announcements.

Importance of 25 by 25 Goal 25 percent by 2025 is goal in both the Renewable Energy Action Plan and Oregon Strategy for Greenhouse Gas Reductions. By making the RPS goal compatible with existing plans it will not contradict ongoing efforts in either the REWG or CATF group. With careful and deliberate design, the RPS can be developed in either group and used in both groups. REWG currently has lead on crafting RPS details.

Credit Multipliers Some RPS designs allow “extra credit” in terms of kWh for certain resources or project sizes (e.g, double credit for DG) This can lead to a situation where RPS compliance is reached (at 25%) but with the actual emissions reductions expected from that level of compliance reduced accordingly.

Renewable Energy Certificates REC = bundle of attributes associated with power generation (type, emissions, etc.) “bundled” REC = power + attributes “unbundled” REC = generated power sold separately from attributes “disaggregated” REC = a REC in which one or more attributes is “stripped” off (e.g. CO 2 ) and sold or used independently.

RECs for Compliance Virtually all RPS programs use RECs the compliance mechanism. CO 2 used for carbon cap is an integral part of REC bundle of attributes. Retiring a REC to comply with an RPS takes the affiliated CO 2 attributes with it to the “grave”. So does obtaining and using a REC satisfy the requirements of both an RPS and a carbon cap?

REC Accounting Terminology Yes -- However, if the REC is disaggregated and the carbon used to satisfy the cap, then there would be partial double-counting of that REC. Yes -- If it is understood the REC is being traded and disposed of solely within the RPS system, then the regulating entity (state) can allow double use if it so chooses, meaning a REC (with all of its attributes) can comply with both programs.

Implications of Double Use The difference between double counting and double use is not purely semantics. Disaggregating a REC is highly problematic from a consumer protection viewpoint. Double usage makes sense, but the carbon attribute of that REC has no separate value and can’t be sold -- or perhaps more importantly, the carbon attribute can not be represented to others as having some separate value.

Bundled vs. Unbundled RECs Straw proposal requires unit-specific power contracts to the utility, although utility can sell power separate without the REC. Unbundled RECs could only be used as offsets, probably up to an upper limit. Hence, strong incentive to only allow bundled RECs in both RPS and carbon cap.

Summary RPS should be considered, and designed as, a subset of the carbon cap. To the extent credit multipliers are used in RPS it decreases real carbon reductions. Intent is to allow double usage of RECs. If RPS uses bundled RECs, few problems. Usage of unbundled RECs in RPS past offset limit in cap is a potential problem.