Seven Northeast States Launch Regional Greenhouse Gas Initiative

ALBANY, New York, December 20, 2005 (ENS) - The governors of seven Northeast states announced their agreement today on the first mandatory cap-and-trade program to control carbon dioxide emissions in the United States. The regional climate change and energy program aims to reduce the heat-trapping greenhouse gas emissions responsible for global warming.

A memorandum of understanding detailing the program was released today and will be signed by Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont.

Called the Regional Greenhouse Gas Initiative (RGGI), the program will reduce carbon dioxide pollution through a mandatory emissions cap on the electricity generating sector, coupled with a market-based trading program to achieve the lowest possible compliance costs.

Beginning in 2009, RGGI will stabilize carbon dioxide (CO2) emissions from power plants in the region at current levels through 2015, and reduce emissions by 10 percent from current levels by 2019. RGGI also aims to achieve reductions through energy efficiency and through greenhouse gas emission reduction projects outside of the power sector.

New York Governor George Pataki, a Republican, originated the RGGI proposal. “My goal in proposing the Regional Greenhouse Gas Initiative in 2003 was to bring states together to tackle a significant environmental challenge that we all face, knowing that a collaborative effort is the most effective policy,” Pataki said today.

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New York Governor George Pataki started the RGGI in April 2003, when he invited the governors of Northeast states to design a mandatory cap-and-trade program to cover power plants. (Photo courtesy Office of the Governor)
“Under this program, we will use a market-based system to curtail harmful CO2 emissions and spur the development of innovative technologies that will reduce our dependence on foreign energy, strengthen our economy, and take meaningful steps in the fight against climate change," said Pataki.

Average household bills are expected to increase by about $3 to $24 annually once the RGGI begins operating. The governors say they anticipate that RGGI will generate new investments in innovative and cleaner technologies and energy efficiency, which could lower electricity rates.

Delaware Governor Ruth Ann Minner, a Democrat, heads one of the seven states that will participate in the RGGI. “This historic agreement represents the first significant step toward reducing greenhouse gas emissions in this nation,” she said. “I am proud that Delaware has been part of this very important effort which I believe will result in measurable reductions of greenhouse gas emissions in a manner that maintains reliability and economic certainty in our electrical generating sector. I also see the potential for this program serving as a national model.”

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Delaware's Edgemoor power plant burns coal and oil. It will come under the new RGGI in 2009. (Photo courtesy Delmarva Power)
The participating states plan to issue a draft model regulation for public review and comment in early 2006. Each individual state will then proceed with the required legislative or regulatory approvals to adopt the program. Pending the completion of this process, the RGGI cap-and-trade program is slated to begin on January 1, 2009.

Under the program, the states will issue one allowance, or permit, for CO2 emissions for each ton of pollution allowed by the cap. Each plant will be required to have enough allowances to cover its reported emissions.

The plants may buy or sell allowances, but an individual plant’s emissions cannot exceed the amount of allowances it possesses. The total amount of the allowances will be equal to the emissions cap for the seven-state region.

At least 25 percent of a state’s allowances must be dedicated to strategic energy or consumer benefit purposes, such as new technologies and ratepayer rebates. A power plant also could purchase these allowances for its own use. The funds generated from these sales will be used for beneficial energy programs.

This agreement allows power plants to utilize offsets, which are greenhouse gas emission reduction projects from outside the electricity sector, to account for up to 3.3 percent of their overall emissions.

Offset projects could be natural gas end-use efficiency, landfill gas recovery, reforestation, or methane capture from farming or natural gas transmission facilities. Under the program, offset projects will be accepted from anywhere in the United States, with a 2:1 preference for projects in the region.

A power plant owner or operator will be allowed to select the lowest cost emission reductions and apply them to a portion of the plant’s emissions requirement. Offset projects provide generators with additional flexibility to meet their compliance obligations at the lowest cost.

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The coal-fired Niagara Mohawk power plant is located on a Lake Erie peninsula. (Photo by David Parsons courtesy NREL)
The program incorporates additional measures to ensure that the cost of allowances remains affordable. For example, if the average annual price of an emission allowance were to rise above $7, offsets would then be allowed from anywhere in North America at a 1:1 ratio and could be utilized to offset up to five percent of a plant’s reported emissions.

Expanding the regional area from which to find offset projects and allowing offsets to account for a greater percentage of emissions will help to keep energy prices low.

The agreement also establishes a $10 per allowance safety valve. Under this provision, if allowances exceed $10 for a sustained period of time, the compliance period would be extended by the states, and the generators would be allowed to use offsets for up to 20 percent of their reported emissions. Under the safety valve, offset projects also would be allowed from an international trading program.

Governor Jim Douglas of Vermont, a Republican, said, “Today, we have shown that governments are ready, willing and able to work cooperatively across borders to address the very serious - and very real - problems presented by climate change. I applaud the Vermont team that worked so hard to ensure that RGGI would be beneficial to Vermont, and I want to thank my fellow governors for the courage and conviction they have shown in addressing these issues.”

Governor Douglas today announced the membership of a new state Commission on Climate Change that he created last week by Executive Order. Six Vermonters representing interests from real estate to environmental advocacy will work with the Department of Environmental Conservation and consultants to develop a Climate Change Action Plan to be delivered to the governor no later than September 1, 2007.

Connecticut Governor M. Jodi Rell, a Republican, also had two emissions-related announcements today. In addition to announcing Connecticut's participation in the RGGI, she said that the state General Assembly’s Regulations Review Committee adopted regulations today requiring reduced emissions of greenhouse gases for cars and light trucks sold in the state beginning with model year 2009 in parallel with regulations in California.

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Connecticut Governor M. Jodi Rell (Photo courtesy Office of the Governor)
“With the adoption of both the RGGI agreement and the California LEV II regulations, we are working to combat climate change, encourage energy conservation and stimulate the development of renewable energy sources,” Rell said. “These steps demonstrate Connecticut’s continued commitment to the environment and to building a more secure energy future for our state.”

The Northeast region has a history of being at the forefront of action to limit climate change. In 1998, New Jersey became the first state in the nation to establish a goal of reducing the state's total greenhouse gas releases.

“New Jersey has taken a lead role in shaping a visionary and historic agreement to combat global warming,” New Jersey Acting Governor Richard Codey, a Democrat, said today. “In the absence of federal leadership, these states have come together to take real steps to cut carbon dioxide emissions.”

In 2001, the New England Governors and Eastern Canadian Premiers agreed to a joint climate action plan that led to individual state climate action plans. In 2001, New York established a greenhouse gas task force that issued a set of recommendations, including a recommendation to start the Regional Greenhouse Gas Initiative.

The Regional Greenhouse Gas Initiative began in April 2003, when Governor Pataki invited the governors of Northeast states, from Maine to Maryland, to participate in the design of a mandatory cap-and-trade program to cover power plants.

Since then, Massachusetts and Rhode Island have elected not to participate in the program at this time, despite recent negotiations and program modifications made to address cost concerns expressed by all parties.

The program is not expected to be any less effective as a seven state program as it would have been with all nine states participating. Massachusetts and Rhode Island may reconsider at any time, and the program is open to any state wishing to join in the effort.

The RGGI has met with approval from the business community.

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Theodore Roosevelt IV is managing director of the global investment bank Lehman Brothers, Inc. and chair of Strategies for the Global Environment. (Photo by Austin Hills courtesy Roots of Peace)
Theodore Roosevelt IV, managing director, Lehman Brothers, Inc. and chair of Strategies for the Global Environment, said, “The Regional Greenhouse Gas Initiative marks an important step forward for the Northeastern states in their efforts to address climate change. These states know from their experience with the sulfur dioxide and nitrogen oxides trading programs that cap-and-trade programs can reduce emissions at lower costs to both industry and government. RGGI will create incentives for technological innovation that will benefit business, consumers and the environment."

Kevin Burke, president and chief executive officer of power giant Con Edison said, “We believe this is an important step in addressing climate change and is consistent with our commitment to environmental excellence.”

James Mahoney, director of public policy for the Bank of America said, “Bank of America applauds New York and the Northeast states on taking action on an increasingly urgent environmental concern. The approach developed through the Regional Greenhouse Gas Initiative rewards innovation and demonstrates that the region can address climate change using a market-based approach.”

“DuPont has long considered climate change a serious global environmental issue, and that is reflected in the leadership role we have taken by reducing our own greenhouse gas emissions by 72 percent," said Linda Fisher, vice president and chief sustainability officer of the chemicals company. “The market mechanisms, which are a cornerstone of RGGI, are an essential component to addressing climate change in a cost effective manner. Climate change is a global problem and it requires a global response.”

Environmentalists, as expected, were pleased with the regional pact. Eileen Claussen, president of the Pew Center on Global Climate Change, said, “The Regional Greenhouse Gas Initiative unveiled today is a milestone, not only for the states involved, but also for how we in the United States will likely deal with climate change in the years ahead. As the world’s leading producer of greenhouse gases, the U.S. urgently needs an effective national climate strategy; RGGI starts us down the path that we hope will ultimately lead to an economy-wide cap-and-trade plan."

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Steven McCormick is president and CEO of the Nature Conservancy. (Photo courtesy Nature Conservancy)
Steven McCormick, president and CEO of the Nature Conservancy, said, “Climate change, if left unchecked, poses one of the greatest threats to cherished places around the world. The regional climate agreement announced today marks progress toward reducing this threat." He said the agreement "sets an important precedent for future climate change policies in the U.S. and internationally.”

Fred Krupp, president of Environmental Defense, said, “RGGI will not only be an important step toward solving the problem of global warming, it will help position New York business to take advantage of the growing opportunities with clean technologies.”

Executives at Siemens Building Technologies in North America agree. CEO and President Daryl Dulaney said, “We at Siemens Building Technologies believe the Regional Greenhouse Gas Initiative is good for our environment and energy technologies as a whole."

In the absence of federal regulations controlling emissions of carbon dioxide, states are developing their own policies. In addition to the RGGI, governors in New Mexico and California have announced targets for deep cuts in carbon dioxide emissions. Oregon and Washington are developing a plan similar to RGGI.