1. 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. 2 MassDEP Presentation Outline RGGI Background Source-based Program Components Load-based Program Components Linking the two Programs Conclusions

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

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

5. 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. 6 Source-Based Programs MassDEP

7. 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. 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. 9 Load-Based Programs MassDEP

10. 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. 11 Why CO 2 is different MassDEP

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

13. 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. 14 MassDEP Other Issues (3) Leakage  Will it occur?  Tracking the impact  Options for controlling  Impact of a national program

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

16. 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. 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. 18 Contact information: nancy.seidman@state.ma.us www.mass.gov/DEP 617-556-1020 MassDEP Thank you very much! Questions, Comments?

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20. 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. 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. 22 Air Quality and Energy are Inseparable