1. Overview of the Regional Greenhouse Gas Initiative (RGGI) David Farnsworth, Esq. Staff Attorney, Vermont Public Service Board

2. 2 As a number of states began to develop climate change action plans, it became clear that greenhouse gas reductions would be needed from the power generation sector. It was concluded that a regional market- based cap & trade program for CO 2 was the best option for obtaining such reductions. RGGI Background

3. 3 Staff Working Group  Agency Heads  Governors Unprecedented collaboration between energy & environmental agencies Expert input from ISOs, environmental & energy research organizations Extensive stakeholder input (two-plus year regional process) Observations on the Process

4. 4 Dec 20, 2005: MOU signed by 7 states Mar 23, 2006: Draft model rule released to stakeholders and public for comment August 15, 2006: Model rule issued February 2007: Massachusetts and Rhode Island sign MOU April 2007: Maryland signs MOU September 2006 - December 2008: State processes to implement program Timeline

5. 5 Model Rule Overview Draft released March 23, 2006 for public comment More than 100 organizations submitted comments (1,000-plus pages) Significant revisions made based on public comments (requiring revisions to MOU) Revised model rule posted August 15, 2006 –See http://www.rggi.org/modelrule.htm

6. 6 RGGI Program Components Start date of January 1, 2009 Covers fossil-fired electric generating units 25 megawatts and larger Two-phase cap: stabilize emissions through 2014; reduce 10% by 2018 –(cap start point 4% above avg. 2000-2004 annual emissions) Comprehensive program review in 2012

7. 7 RGGI Program Components Three-year compliance period Banking allowed (no limit) Allocations: –Minimum 25% allocation for Consumer Benefit and/or Strategic Energy Purpose, as defined in MOU (e.g., support end-use energy efficiency) –Remaining 75% allocated at discretion of each state –States comprising majority of regional emissions budget have committed to 100% auction with revenues to provide consumer benefits

8. 8 RGGI Program Components Offsets — Project-based reductions –End-use energy efficiency (building sector; excludes electric end-use efficiency) –Afforestation –Landfill gas capture & combustion –Methane capture & combustion from animal manure management operations –SF 6 leak reduction (electricity transmission & distribution –International carbon currencies under limited circumstances (CDM)

9. 9 RGGI Program Components Offsets — requirements Limited to initial project types (to be expanded over time) Model rule specifies project criteria: –eligibility (generic and category-specific requirements) –quantification and verification of emissions reductions –Independent third-party verification –accreditation standards for independent verifiers

10. 10 RGGI Program Components Offsets — geographic scope RGGI participating states Offsets from other U.S. states if MOU executed with state agency to provide compliance/enforcement assistance to RGGI states If $10/ton trigger hit, international offsets allowed (e.g., CDM)

11. 11 Regional Auction States plan to accomplish “allocation for consumer benefit” by auctioning allowances and using proceeds to fund energy efficiency, etc. Research group from University of Virginia has developed auction design report. States will try to select auction design features that will prevent market manipulation.

12. 12 Regional Cap / State Budgets For the 10 signatory states, overall cap size is 188,076,976 tons at start. State Budgets based mainly on average CO 2 emissions in 2000-2002. Subsequent adjustments made for some of the initial 9 RGGI states.

13. 13 RGGI in Vermont Vermont’s Budget 1,225,830 tons.

14. 14 RGGI in Vermont cont. 30 V.S.A. §255 Regional Coordination to Reduce Greenhouse Gases. the public service board…shall establish a process to allocate 100 percent of the Vermont…budget…of carbon credits through the allocation to one or more trustees acting on behalf of consumers….

15. 15 RGGI in Vermont cont. 30 V.S.A. §255 Regional Coordination to Reduce Greenhouse Gases. Appointment of Consumer Trustees: –Trustee to “receive, hold, bank, and sell tradable carbon credits….”

16. 16 Questions?