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 NOx. 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 RGGIConnecticut,
Delaware, Maine, New Hampshire, New Jersey, New York, and Vermonthave
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States, but Massachusetts and Rhode Island have withdrawn.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
States 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
States 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 |