Q & A: Regional Greenhouse Gas Initiative

What is the Regional Greenhouse Gas Initiative (RGGI)?
How does a cap-and-trade program work?
What is the RGGI emissions cap?
What CO2 emissions sources are subject to RGGI and how will compliance be determined?
How are emissions allowances distributed?
How will electric generators comply with RGGI?
How do the states go forward from here?

What is the Regional Greenhouse Gas Initiative (RGGI)?

RGGI is a program developed by seven New England and Mid-Atlantic states to cap and trade carbon dioxide emissions from power plants. New York Governor George Pataki initiated RGGI in April 2003 when he invited neighboring states to join the effort. Connecticut, Delaware, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island and Vermont were involved in designing the program, while states such as Maryland and Pennsylvania participated as observers to the process.

The governors who have announced their support of RGGI are Governor Jodi Rell of Connecticut, Governor Ruth Minner of Delaware, Governor John Baldacci of Maine, Governor Martin O’Malley of Maryland, Governor Deval Patrick of Massachusetts, Governor John Lynch of New Hampshire, Acting Governor Richard Codey of New Jersey, Governor George Pataki of New York, Governor Donald Carcieri of Rhode Island, and Governor James Douglas of Vermont.

How does a cap-and-trade program work?

A cap-and-trade program is a market-based mechanism that sets a limit on total emissions that are allowed from certain sources (e.g. power plants). The core requirement of a cap-and-trade program is that sources must hold enough emission “allowances” to cover their emissions. An allowance is the right to emit one ton of emissions. Tradable emission allowances equal to the cap are distributed and traded between sources. Trading enables sources that can reduce their emissions at lower cost to sell their excess emissions allowances to sources that face higher costs of emissions reduction. Sources may choose to reduce their emissions early and bank their excess allowances for future use. This trading system allows the lowest-cost compliance with a regulatory requirement.

What is the RGGI emissions cap?

RGGI goal sets a cap on power plant emissions at approximately current levels of 120 million tons of carbon dioxide between 2009 and 2015, which then declines 10% by 2019.

What carbon dioxide emissions sources are subject to RGGI and how will compliance be determined?

RGGI will cover power plants of at least 25 megawatts that burn more than 50% fossil fuel. Compliance procedures will mirror existing federal requirements in which emissions sources continuously monitor and report their emissions. Penalty provisions for non-compliance will be enforced according to each state’s prevailing enforcement methods. Initially, sources will have to hold sufficient allowances to cover a three year compliance period. This compliance period may increase if allowance prices rise above a set level.

How are emissions allowances distributed?

Emissions allowances are distributed in two steps. First, states are apportioned their share of allowances from the overall cap. Each state can then allocate 75% of the emission allowances as it sees fit, with a majority of allowances likely to be freely distributed to entities covered by the program. The remaining 25% of allowances will be used for a public benefit purpose, such as promoting renewable energy and energy efficiency, or to mitigate possible increases in consumer energy prices.

How will electric generators comply with RGGI?

Generators will have a variety of options to comply with RGGI. Generators can reduce their emissions through efficiency measures, switching fuels, or using new technologies, and then sell their excess allowances. Generators can also simply purchase allowances sufficient to cover their emissions, if they emit more carbon dioxide than their initial allocation of allowances would permit.

Aside from trading emission allowances, RGGI allows various flexibility mechanisms to enable successful compliance with the cap. Emission “offsets” are one such mechanism. Offsets are emission reductions from sources outside the sectors that are to be capped by a program; in the case of RGGI offsets must come from sources outside of power plants. Approved offset projects will initially include the capture of landfill methane from farming operations or from leaking natural gas infrastructure, the implementation of end-use natural gas or heating oil energy efficiency, afforestation, and the capture of sulfur hexafluoride (SF6) emissions from electricity transmission and distribution equipment. Other eligible offset types may be added in the future.

The use of offsets will be limited to ensure that the majority of the reductions occur within the utility sector. Specifically, sources will initially be allowed to cover up to 3.3% of their emissions using offset allowances, an amount equal to approximately half of a source's emissions reduction obligation.

RGGI initially allows offset projects anywhere in the United States. If average allowance prices rise above $7 per ton, sources will be allowed to cover up to 5% of their emissions using offsets. If allowance prices rise above $10 per ton, RGGI will allow sources to cover up to 10% of their emissions with offsets, and will allow offset projects outside the U.S. as well as allowances from the EU Emissions Trading Scheme and the Kyoto Protocol’s Clean Development Mechanism.

If allowance prices rise above an average of $10 per ton, then the compliance period will be extended by one year, for a maximum compliance period of 4 years. This mechanism will give sources more time to reduce their emissions and may allow allowance prices to fall.

How do the states go forward from here?

On December 20, 2005, the governors signed a Memorandum of Understanding, which set ground rules for entry of states into RGGI, addressed the coordination of emissions tracking, and committed each state to adopting the model rule. On August 15, 2006, after a period of public comment, the seven Northeastern and Mid-Atlantic states participating in RGGI released the final model rule for the program. The model rule provides a set of regulations detailing the structure and function of RGGI. It lays out what sources are covered by the program and how they demonstrate compliance; provides for the allocation of allowances for public benefit purposes; and describes other program details that each state must adopt. Each state that intends to participate in RGGI must adopt this rule through legislation or regulation and determine how to allocate its emission allowances. Additional states can join the program with the agreement of the participating states.

To complement RGGI and enable its success, the states will create a regional organization to help implement the program and will maintain and expand policies that promote energy efficiency and low-carbon power. The states will also develop additional offset categories.



Get more information on RGGI.

Learn more about climate change action at the state level.