RGGI States Propose Lowering Regional CO2 Emissions Cap by 45 Percent

February 8, 2013

On February 7, 2013, the nine Northeastern and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative (RGGI) announced they are proposing to lower the regional power plant CO2 emissions cap by 45 percent and to introduce more flexible cost control mechanisms to the regional cap and trade program.

The states released an updated model rule and a summary of accompanying recommendations resulting from a comprehensive two year review of the program. The participating states now plan to amend their individual laws and regulations with each state seeking to complete their state-specific processes in time for the proposed changes to take effect on January 1, 2014.

The model rule would set the regional emissions cap for 2014 at 91 million tons, a 45 percent reduction below the 2013 cap. The cap on carbon emissions would decline 2.5 percent annually from 2015 to 2020 as previously planned. The new cap level was set to respond to a key finding of the program review: that there is an excess supply of CO2 emission permits, or allowances, relative to actual emission levels in the region. 

The updated model rule also provides for the creation and use of a cost containment reserve (CCR) that would make additional allowances available for sale if  allowance prices exceed predefined price levels. Currently the program allows for an expansion of offset allowances to curb high costs, but the program review found this mechanism is unlikely to be effective under the new cap.

The CCR trigger prices will be $4 in 2014, $6 in 2015, $8 in 2016, and $10 in 2017. Each year after 2017, the CCR trigger price will increase by 2.5 percent.  If the CCR is triggered, the CCR allowances will only be sold at or above the CCR trigger price. There will be an annual limit on how many allowances may be withdrawn from the CCR if the price trigger is exceeded, with the limit set at 5 million allowances in 2014, and at 10 million allowances each year thereafter.  The CCR would initially be populated in 2014, and in subsequent years would be replenished only as needed to maintain the withdrawal limit.

The recommendations include a commitment to engage in a collaborative effort to address emissions leakage during the next year.  Emissions leakage refers to potential increases in emissions outside the RGGI region induced by the regional emissions price.  RGGI staff and partners will work to identify and evaluate potential tools for tracking imported electricity, conduct further modeling to ascertain energy and price implications of potential policies associated with imported electricity, and pursue additional legal research as needed.

The nine RGGI states agreed to retire unsold allowances from 2012 and 2013, rather than reoffering them for the next control period.