Implementation of the Clean Air Interstate Rule and Clean Air Mercury Rule

In May 2005, the EPA published two final rules aimed at reducing emissions from coal-fired power plants. CAIR [51] requires 28 States and the District of Columbia to reduce emissions of SO₂ and/or NO_x. CAMR [52] requires the States to reduce emissions of mercury from new and existing coal-fired plants [53]. 

The two rules cap emissions at the regional and national levels; however, each State can decide how to meet its own cap, as long as the minimum program milestones are met. For CAIR, the States have until March 2007 to submit implementation plans to the EPA, which then will have until September 2007 to review the plans and identify modifications, if necessary. For CAMR, the States must present their plans by November 2007, and the EPA then will have 6 months to accept the plans or require modifications. 

Both CAIR and CAMR provide States the flexibility to participate in a regional cap and trade program. Several States, including most of those in the Northeast, have said as of September 2006 that they will not participate in the cap and trade program for mercury emissions under CAMR [54], because they plan to adopt more stringent standards. In addition, some States plan to place mandatory restrictions on individual coal-fired plants in order to reduce the possibility that localized areas will continue to have high levels of mercury emissions. Those restrictions differ from the Federal plan of enforcing only statewide caps. 

Final decisions regarding the structure of State programs and participation in the regional trading program will not be made until after November 2007. Currently, both CAIR and CAMR are represented as regional cap and trade programs in AEO2007. This approach will be reevaluated when the final State programs have been submitted and reviewed by the EPA. 

Regional Greenhouse Gas Initiative

The governors of the seven States participating in the RGGI—Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont—have committed to enact legislation individually for achieving the desired emission reductions under the agreement. The group originally consisted of nine States, but Massachusetts and Rhode Island have withdrawn. In Maryland, recently adopted legislation requires the State to join the RGGI by June 2007 [55]. Pennsylvania, the District of Columbia, and several Canadian provinces are observers to the program. 

When the original RGGI agreement was signed in December 2005, each participating State agreed to cap its greenhouse gas emissions from power production beginning in January 2009. The States were provided CO₂ allocations based on their average emissions for the 3-year period from 2000 to 2002, with exceptions. States that had built or were anticipating new plants between 2002 and 2009 were allowed additional allowances to reflect the level of emissions expected in January 2009. The governors of the seven States currently participating have already agreed to their respective allowance allotments. 

For the seven northeastern States, the annual cap is approximately 121 million short tons, representing a 6.1-percent increase over their combined CO₂ emissions in 2000. After January 2009, the RGGI requires each participating State to hold its emissions at or below its CO₂ allotment. The caps remain unchanged until the end of 2014, after which they are reduced by 2.5 percent annually. Thus, by the end of 2018, CO₂ emissions in the participating States will be 10 percent below the levels at which the allocations were issued. 

The August 2006 model rule clarifies several provisions on how States can achieve their emission reductions. It also provides compliance flexibility if prices rise beyond what is anticipated, although threshold levels have not been determined. One-quarter of potential revenue from the auction or sale of emission credits must go to consumer benefits or strategic energy purposes. This broad category includes energy price discounts, renewable and low-carbon energy investments, and energy efficiency programs. Also, CO₂ emission reductions by power producers before the January 2009 start date will be credited for use during the cap period. 

Other States and provinces may participate in the RGGI through carbon offset programs. If the price of credits remains below $7 (2005 dollars) per short ton of CO₂, power producers may account for 3.3 percent of their emissions through offset programs in any State or province, including capture of landfill methane and sulfur hexafluoride, afforestation, end-use efficiency programs, and agricultural emission reductions. For each ton of CO₂ avoided or sequestered in the projects, the power producer will be provided one emission credit for use or sale. In order for an offset program to be eligible, it cannot be part of any other State mandate and must be attributable only to the RGGI. If the price of CO₂ credits is sustained above $7 for more than 12 months, power producers will be able to offset up to 5 percent of their CO₂ emissions. If credit prices surpass $10 for a sustained 12-month period, then producers will be able to offset 10 percent of their emissions and may participate in international credit markets. 

The individual States still must enact their own legislation to achieve the RGGI milestones. State legislation will determine compliance issues, such as credit allocations, enforcement methods, and options for exiting the agreement. Each State will be responsible for issuing its own allowances. Some States may choose to sell them at a certain price; others may hold auctions. They may also be given away, or the States may use a combination of methods. 

Although the State RGGI caps and timelines are known, many aspects of their implementation remain uncertain, because the participating States have not yet enacted the necessary legislation. Therefore, the RGGI provisions are not modeled in AEO2007. 

California Greenhouse Gas Legislation

A.B. 32, “California Global Warming Solutions Act of 2006,” which was signed into law by Governor Arnold Schwarzenegger on September 27, 2006 [56], calls for a 25-percent reduction in CO₂ emissions by 2020. The first major controls, for the industrial sector, are scheduled to take effect in 2012. The plan grants the California Air Resources Board lead authority for establishing how much industry groups contribute to global warming pollution, assigning emission targets, and setting noncompliance penalties. It sets a 2009 date for establishing how the system will work and then allows 3 years for the State’s industries to prepare for the 2012 startup of mandatory emissions reductions [57]. 

It is not yet known what sources of greenhouse gas emissions will be subject to the restrictions, although the bill states that all major sources of CO₂ will be included. The bill does not mention the transportation sector, which is covered in separate legislation. A.B. 32 also specifies that all emissions from the generation of power consumed within the State are expected to be subject to the new laws. Because California imports power from neighboring States, emissions in those States may also be affected. In addition, California collaborates on its greenhouse gas policy with the States of Washington and Oregon through the West Coast Governors’ Global Warming Initiative [58]. 

A.B. 32 delegates most of the responsibility for implementation and enforcement to the California Air Resources Board. Although the bill indicates that the reduction program will rely on market-based compliance mechanisms, it does not indicate the course of action that will be taken to reduce emissions. Reliance on a market-based compliance mechanism suggests the possible use of a credit trading program. If this is the case, issues such as credit distribution, offset allowances, price caps, and other restrictions will be decided by January 2009. 

The Air Resources Board will also coordinate enforcement issues with the State’s Public Utilities Commission and Energy Resources Conservation and Development Commission. Regulations on the monitoring of greenhouse gas emissions must be in place by 2008, when accurate reports on emissions from all major sources will be mandatory. Final regulations for the emissions reduction program will be presented in January 2011 and will become operative in January 2012. Because the program specifics have not been developed, A.B. 32 is not modeled in AEO2007.

Notes and Sources

Contact: Robert Smith
Phone: 202-586-9413
E-mail: robert.smith@eia.doe.gov