1 RGGI’s Source-Based Cap-and-Trade Program MassDEP April 19, 2007 Nancy L. Seidman Division Director, MassDEP Presentation to CA PUC Symposium

2 MassDEP Presentation Outline RGGI Background Source-based Program Components Load-based Program Components Linking the two Programs Conclusions

Statistics 3rd Largest World Economy 14% of US GHG Emissions 3.2% of World GHG Emissions (  Germany)

RGGI Status Model Rule issued with state budgets see: Regional organization being developed Energy and Air Quality policy links established Starting date – Jan. 1, 2009

5 MassDEP MA RGGI Status Rejoined RGGI in January 2007 Governor says auction allowances Proceeds to go towards renewables and energy efficiency Final MA regulation early 2008

6 Source-Based Programs MassDEP

7 Source-Based Program Design Precedents:  Acid rain  NO x SIP call  Permitting Monitoring and Tracking – established systems, known costs Source-based programs are familiar to Environmental Agencies

8 MassDEP Program Components Affected facilities – Size threshold Allowance Distribution:  Allocation – Free to affected facilities or  Auction - Purchased Monitoring – EPA requirements Tracking – EPA system Compliance – EPA and states

9 Load-Based Programs MassDEP

10 MassDEP Program Components Affected load Allowance Distribution:  Allocation – Free to affected load serving entities or  Auction – Purchased Monitoring – Metering Tracking – MWh by ISO Compliance – State

11 Why CO 2 is different MassDEP

12 MassDEP Issues for Both Programs Renewables Energy efficiency Leakage These issues are within the purview of Energy Agencies

13 MassDEP Other Issues (2) Renewables and Energy Efficiency A cap provides an incentive to renewables and efficiency Does one system yield more improvement? Direct and indirect impacts with load- and source-based programs

14 MassDEP Other Issues (3) Leakage  Will it occur?  Tracking the impact  Options for controlling  Impact of a national program

15 MassDEP Linking Systems Allocation Auctions Trading of allowances Price impacts on rate payers and facilities

16 MassDEP When Linking Programs Consider: Relative stringency of the Caps Whether offsets are allowed Whether safety valves and price triggers are included Leakage: double or “no” counting issues All but last item are important for any programs merging

17 Source-based program have precedent Environmental Agencies are comfortable with them New issues arise with CO 2 Load- and Source-based can be linked Federal legislation is needed regardless of the system put in place MassDEP Conclusions

18 Contact information: MassDEP Thank you very much! Questions, Comments?

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20 MassDEP Traditional Cap and Trade Affected facilities surrender one allowance for every ton emitted Allowances are allocated for free Assumes Facilities make informed decisions: Whether and how to reduce their emissions, or Whether buying allowances is more cost-effective

21 MassDEP Traditional Cap and Trade (2) Stationary facilities are the best point for regulation of a pollutant of concern, and Control equipment is available Monitoring is standardized so all tons are equal Reporting is standardized for ease of Administration Auctioning allowances provides a new twist

22 Air Quality and Energy are Inseparable