Currently active cap-and-trade system, no offset projects implemented to date (as of 1/2011).
Market Size and Scope
Offset Project Eligibility
Additionality Requirements and Project Methodologies
Project Approval Process
Type of System/Program and Context
The Regional Greenhouse Gas Initiative (RGGI) is a multi-state mandatory cap-and-trade program to reduce CO2 emission from electricity generation. It was established in 2005 by governors of seven US states in the Northeast and Mid-Atlantic regions and has since expanded to include 10 states. The program applies to fossil fuel-fired electric generating units 25 megawatts and larger.
RGGI went into effect on January 1, 2009, as the first mandatory cap-and-trade program to regulate GHGs in the US. Its objective is to reduce CO2 emissions in the electric generation sector by 10% from 2009 to 2018. It will start by setting a regional cap to stabilize emissions from 2009 through 2014 at 188 million short tons of CO2 and then reduce the cap by 2.5% each year through 2018. More than 85% of the regional emissions budget is being allocated through auctions, with auction proceeds used by participating states to accelerate the deployment of end-use energy efficiency and clean energy technologies and provide other consumer benefits.
Offsets serve as a limited compliance flexibility mechanism for regulated facilities under the RGGI program. The quantitative limit on offsets was set at a level that approximates the amount of offsets equivalent to 50% of the projected avoided emissions that would need to be achieved to comply with the emissions cap. At the start of the program, a regulated facility will be able to meet 3.3% of its compliance obligation during a compliance period through the use of offsets. If the emissions allowance price rises above a specified level, or price trigger, a regulated facility can use a higher percentage of offsets to meet its compliance obligation. (The price trigger is evaluated based on long-term price signals. These signals are determined based on a 12-month rolling average price, following a 14-month market settling period, which commences at the start of each new compliance period.) If the price exceeds USD 7 (stage-one trigger), a regulated facility can use offsets to meet up to 5% of its compliance obligation; and if it exceeds USD 10 (stage-two trigger), it can use offsets to meet 10% of its compliance obligation. Both stage-one and stage-two price triggers are calculated based on formulas in RGGI Model Rule definitions of stage-one and stage-two “threshold price”.
The RGGI trading system is currently considerably overallocated, a situation that will continue unless the caps are revised. Because of the overallocation, RGGI allwance prices are low and offsets have not been used by the covered entities.
Standard Authority and Administrative Bodies
The program authority for RGGI is distributed among the participating states with each state’s environmental regulatory agency serving as the administrative authority in its state. RGGI is composed of individual CO2 Budget Trading Programs in each of the ten participating states. These ten programs are implemented through state regulations, based on a RGGI Model Rule, and are linked through CO2 allowance reciprocity. Owners and operators of regulated power plants are able to use a CO2 allowance issued by any of the ten participating states to demonstrate compliance with the state program governing their facilities. Taken together, the ten individual state programs function as a single regional compliance market for carbon emissions.
Each state agency is responsible for the administrative tasks related to implementation of its state CO2 Budget Trading Program, such monitoring compliance, tracking emissions and allowances, approving offset projects, and awarding offset allowances to offset projects in its state. However, the participating states utilize a shared regional administrative infrastructure to help implement the program, including a single regional platform for CO2 emissions and allowance tracking and offset project tracking, and a regional auction process that relies on a single regional auction platform. The U.S. Environmental Protection Agency (EPA) provides administrative support to the RGGI program through the receipt and processing of quarterly CO2 emissions data reports.
Regional Greenhouse Gas Initiative, Inc. (RGGI, Inc.) is a 501(c)3 nonprofit organization that was created to provide technical and administrative services to participating states. RGGI, Inc., however, has no regulatory or enforcement authority; all sovereign authority is reserved for participating states.
The RGGI program has 10 participating US states in the Northeast and Mid-Atlantic regions: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.
RGGI is currently not linked to any other trading system. If the stage-two allowance price trigger is reached, regulated facilities will be able to utilize offsets credits or allowances generated by offset projects located outside the United States to meet a portion of their compliance obligation. This provides the opportunity for linkage with both of the project-based mechanisms of the Kyoto Protocol, including offset credits from the CDM and Joint Implementation (JI), and potentially other mandatory programs too.
The three regional climate initiatives in North America, RGGI, MGGRA, and WCI have joined in a
cooperative effort to share experiences in the design and implementation of regional
cap-and-trade programs, inform federal decision making on climate change policy, and
explore the potential for further collaboration among the three regional programs in the
future. Together, these 23 U.S. States and 4 Canadian Provinces account for
approximately one-half of the U.S. population, over one-third of U.S. greenhouse gas
emissions, over three-quarters of the Canadian population and one-half of Canadian
greenhouse gas emissions.
In May 2010, they published a white paper: “Ensuring Offset Quality: Design and Implementation Criteria for a High-Quality Offset Program”
Tradable Unit and Pricing Information
The tradable units generated from offset projects created under the RGGI program are referred to as ‘CO2 offset allowances’ and measured in units of short tons of CO2e. The RGGI program uses units of short tons in order to be consistent with current U.S. EPA CO2 emissions reporting in the US for certain power plants and industrial sources.
Regulated facilities under the RGGI program include all fossil fuel-fired electric generating units with a capacity greater than 25 megawatts within the boundaries of the 10 current participating US states. There are no limitations on who may participate in the RGGI offset market. Any person may submit an offset project to a state agency for regulatory review. Such persons are referred to as offset “project sponsors”.
Current Project Portfolio
RGGI’s first three-year compliance period started in January 2009. The program is expected to cap CO2 emissions at 188 million short tons to the end of 2014. Although trading of RGGI emission allowances has begun, with the first auction having taken place in September 2008, no offset credits have yet been traded under the RGGI program. This is in part due to the fact that RGGI is currently significantly overallocated, therefore covered entities have need needed to use offset credits to meet their cap.
The RGGI program has developed methodologies for five offset project types:
1. landfill methane capture and destruction;
2. Sulfur hexafluoride (SF6) emission reduction in the electricity transmission and distribution sector;
3. carbon sequestration through afforestation activities;
4. CO2 emission reduction or avoidance from natural gas, oil or propane combustion due to end-use energy efficiency in the building sector; and
5. avoided methane emissions from agricultural manure management operations.
Detailed requirements for the above offset project types are included in state CO2 Budget Trading Program regulations, which are based on the RGGI Model Rule. The participating states have also indicated their intention to expand the number of eligible offset project types over time.
Currently, eligible offset projects must be located within a RGGI participating state, or any other state or US jurisdiction where a cooperating regulatory agency has entered into a memorandum of understanding (MOU) with the appropriate regulatory agency in all 10 RGGI participating states to provide oversight support for the project. However, if the stage-two trigger comes into effect, the geographic project location boundary will be expanded to allow, under certain conditions, offsets from any mandatory carbon constraining program outside the US (see Recognition of Other Standards).
There are no project size requirements for the offset project types currently approved by RGGI participating states.
Offset projects must have commenced on or after December 20, 2005.
The initial crediting period for all offset projects is 10 years. Once a project is approved, it can be renewed for an additional 10 years, pending project resubmission and regulatory approval. For afforestation offset projects, the initial period is 20 years and the renewal period is for an additional two 20-year periods, if approved after expiration of the previous period.
Co-benefit Objectives and Requirements
There are no additional co-benefit objectives or requirements for offset projects under the RGGI program. However, potential co-benefits were one criterion considered in the process of selecting eligible project types under the RGGI program.
RGGI takes a standardized approach to evaluating additionality through benchmarks and performance standards. Additionality is evaluated through a combination of general additionality requirements for all eligible offset projects and specific requirements for each project type designed to address project-specific issues, which are specified in state regulations. The general requirements specify that CO2 offset allowances are not awarded to offset projects that:
- Commenced prior to December 20, 2005;
- Are required pursuant to any local, state or federal law, regulation or administrative or judicial order;
- Include an electricity generation component, unless the project sponsor transfers the legal rights to all attribute credits (other than CO2 offset allowances) generated by the project that may be used to complying with a renewable portfolio standard or other regulatory requirement to the state regulatory agency or its agent;
- Receive funding or other incentives from incentive programs funded by electricity or natural gas ratepayers, or through proceeds from the auction of CO2 allowances;
- Are awarded credits or allowances under any other mandatory or voluntary GHG program. (RGGI, 2007).
In addition, offset project applications must be submitted within six months of project commencement.
Quantification protocols for establishing emissions baselines, determining emissions reductions or carbon sequestration, and monitoring and verification are based on a top-down approach. Specific quantification protocols and requirements for each project type are included in state regulations, which are based on the RGGI Model Rule. The protocols provide detailed requirements and formulas for the determination of emission baselines, the calculation of emissions reduced or sequestered, and for monitoring and verification. There are no provisions for addressing potential project emissions leakage. The protocols also require that the monitoring and verification plans of all projects be evaluated by an independent state-accredited verifier, and that offset project applications and monitoring and verification reports include a certification statement and certification report from a state-accredited independent verifier. Participating states are using the American National Standards Institute (ANSI) ISO 14065 accreditation for certain regulatory requirements under the state CO2 Budget Trading Programs.
Specific protocols have been developed to address the issue of permanence in connection with afforestation offset projects. Project developers are required to place the land developed for afforestation projects under a legally binding permanent conservation easement, which requires that the land be managed to maintain long-term carbon density in accordance with environmentally sustainable forestry practices. In addition, sequestered carbon is discounted by 10% prior to the award of CO2 allowances to account for potential reversals of sequestered carbon, unless the offset project sponsor holds long-term insurance, approved by the state regulatory agency, that guarantees replacement of lost sequestered carbon for which CO2 allowances were awarded.
Validation and Registration
Validation, referred to as ‘consistency determination’, is the first step of the application process for offset projects under the RGGI program. The RGGI participating states have jointly developed detailed project applications for each eligible offset project category that specify project documentation requirements to demonstrate conformance with regulatory requirements. The project’s validation application, referred to as a ‘consistency application’, must include a certification statement and certification report from a independent verifier that is accredited by the RGGI participating state in which the offset project is located, and then must be submitted to the appropriate state regulatory agency in the state where the offset project is located. The state agency then evaluates and approves or rejects the project based on demonstrated consistency with state regulations and documentation required in the consistency application.
Monitoring, Verification and Certification
The submission of an annual monitoring and verification report by the offset project developer to the appropriate regulatory agency is the second step in the application process under the RGGI program. A monitoring and verification report must demonstrate the precise amount of GHG emissions reduced or sequestered during the reporting period. It must also include a certification statement and certification report from a state-accredited independent verifier demonstrating that it was reviewed by an accredited independent verifier. The monitoring and verification report is then evaluated by the state regulatory agency to determine whether and in what amount CO2 offset allowances will be awarded.
Registries and Fees
RGGI has set up an emissions and allowance registry called the RGGI CO2 Allowance Tracking System (RGGI COATS)The RGGI participating states have developed an offset module for RGGI COATS. While individual RGGI participating states may require state-specific application procedures, RGGI COATS is used for all project registration, tracking of offset project consistency application and monitoring and verification report submissions, project regulatory status, and the state award of CO2 offset allowances. There are no fees associated with use of the registry but each state may develop a fee structure to cover the administrative costs related to processing offset project applications.