New York formally adopts carbon cap-and-trade program

New York State's Environmental Board last week unanimously approved regulations to implement the Regional Greenhouse Gas Initiative (RGGI), a market-based, mandatory cap-and-trade scheme to reduce carbon dioxide emissions from power plants within 10 northeastern and mid-Atlantic states.

The Environmental Board-a rainbow of state agencies to include Environmental Conservation, Health, Agriculture and Markets, Transportation, Labor, Economic Development, the Public Service Commission (PSC), and state Energy Research and Development Authority-voted 15-0 on Aug. 11, clearing the way for the Environmental Conservation Commissioner to adopt proposed RGGI rules.

RGGI-participating states have signed a memorandum of understanding agreeing to regulate, via adopted state legislation, the carbon dioxide emissions from fossil fuel-fired power plants with a capacity equal to or greater than 25 MW. The RGGI will allot allowances to these states based on a regional emissions budget.

Each state will then sell allowances to electric generators through a regional auction instead of directly allocating them, as with traditional 'cap and trade' programs. The first auction is expected to take place on Sept. 25, 2008. The bid preparation process for this auction is live.

A second quarterly auction will be held on Dec. 17, two weeks before the compliance period is set to begin.

New York will miss the first auction in September, but it will be ready for the December auction, the state?s Department of Environmental Conservation (DEC) said in a statement.

Though New York would not offer any allowances in the September auction, New York power plants and companies, as well as individuals, could bid for allowances offered by other states. Allowances purchased from this auction could later be used to comply with the New York regulation when it is effective, the DEC said.

Massachusetts, Vermont, Connecticut, Maryland, Rhode Island, and Maine are set to auction credits in September. Other RGGI states include Delaware, New Jersey, and New Hampshire, which was the last state to join the initiative.

New York's PSC chair hailed the approval as a 'landmark step' and an 'innovative action' that will take the state governor's vision of clean energy economy into reality.

But the Independent Power Producers of New York (IPPNY) decried the move, stressing that the initiative would hit energy consumers with a cost increase of up to 9% and have a chilling effect on potential investment in the state.

"There is still time before the rule is finalized for changes to be made that will address several concerns," said Gavin Donohue, IPPNY president and CEO.

Since there currently is no carbon-control technology available to retrofit power plants, power producers should have priority access (like in other programs) to the emission allowances needed for facilities to operate in a reliable manner. In addition, a price cap on the cost of the emission allowances would soften the blow to ratepayers. Finally, power producers who are locked into long-term contracts and will suffer devastating economic blows due to their inability to recover the costs to comply with program must receive a proper level of relief.?Sources: New York State Department of Environmental Conservation, RGGI, IPPNY