Comments Submitted to RGGI for Third Program Review

The Regional Greenhouse Gas Initiative (RGGI) is a carbon dioxide control program in the Northeastern United States.  One aspect of the program is a program review that is a “comprehensive, periodic review of their CO2 budget trading programs, to consider successes, impacts, and design elements”.   I recently posted an article describing my comments to RGGI addressing the disconnect between the results of RGGI to date relative to the expectations in the RGGI Third Program Review modeling.  This post describes other comments submitted to RGGI.

I have been involved in the RGGI program process since its inception.  I blog about the details of the RGGI program because very few seem to want to provide any criticisms of the program. The opinions expressed in this post do not reflect the position of any of my previous employers or any other company I have been associated with, these comments are mine alone.

Background

RGGI is a market-based program to reduce greenhouse gas emissions. According to RGGI:

The Regional Greenhouse Gas Initiative (RGGI) is a cooperative effort among the states of Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Vermont, and Virginia to cap and reduce power sector CO₂ emissions. 

RGGI is composed of individual CO₂ Budget Trading Programs in each participating state. Through independent regulations, based on the RGGI Model Rule, each state’s CO₂ Budget Trading Program limits emissions of CO₂ from electric power plants, issues CO₂ allowances and establishes participation in regional CO₂ allowance auctions.

More background information on cap-and-trade pollution control programs and RGGI is available from the Environmental Protection Agency and my RGGI posts page.  Proponents of these programs consider them silver bullet solutions.  However, I agree with Danny Cullenward and David Victor’s book Making Climate Policy Work  that the politics of creating and maintaining market-based policies for Greenhouse Gas (GHG) emissions “render them ineffective nearly everywhere they have been applied”.

Third Program Review

The RGGI participating states hosted two public meetings on September 26, 2023, to discuss updates on the Third Program Review and electricity sector analysis.  I am not going to repeat my description of the presentations here because I covered the details in my article describing my concerns and comments.

I am primarily concerned with the RGGI States Third Program Review request for comments about one program change and the plans for the trajectory of future emissions reductions.  The RGGI States recommended shifting the compliance period to annual compliance from the current three-year period.  A major concern of the program review is future allowance availability so the decarbonization timeline for the electricity sector was considered.  This is complicated because participating State timelines vary, implementation of offshore wind deployment affects decarbonization rates and grid-scale battery storage deployment, duration, and supply certainties affect the outcomes.

The RGGI States have not proposed their plans for the Third Program Review.  In order to address allowance availability, the RGGI States modeled the future electric system.  They described three key observations from the modeling results that support the idea that the RGGI allowance availability can be made more stringent.

1. Modeling shows how current state decarbonization and renewable requirements can significantly reduce emissions;
2. Federal incentives for clean energy have the potential to rapidly transform the RGGI region generation mix; and
3. Scenarios modeled to date show relatively low allowance prices compared to the ECR/CCR price triggers in the Model Rule

The comments received are available on the RGGI website.  The remainder of this article describes the comments submitted.  I find these comments interesting because they provide more information about the underlying biases of those individuals and organizations who took the time to comment than their applicability to the RGGI issues raised.

Biomass Considerations

Three comments from individuals in Vermont complained about biomass power plants and the existing provision for “eligible” biomass to be treated as having zero emissions.  I have not followed RGGI biomass issues and the potential for offsets much so I cannot provide any context. It appears that these commenters don’t like biomass facilities.

• Ashley Adams
• Bob Atchinson 
• Pike Porter

Emission Traders

Independent energy marketing and trading firm Mercuria Energy provided comments that are self-serving.  The Mercuria Energy America comments recommended the following:

• Implement the rule change as soon as possible,
• Net-zero by 2035 is the best option,
• Supply scenarios could be merged if needed,
• Revise the Emissions Containment Reserve and Cost Containment Reserve trigger prices, and
• Caps should be aligned to the existing adjusted cap.

All these recommendations have market implications that emission traders could exploit.

Supporting the Narrative

Two sets of comments generally followed the narrative provided by the RGGI States in their presentations.  The States want to tighten the allowance caps and incorporate an environmental justice component.  These comments aligned with those preferences.

Comments from Business Leaders recommended aligning the caps with necessary climate ambition, incorporating input from environmental justice communities and EJ advisory groups, air quality monitoring, and investing at least 40% of revenues in EJ communities.  The business leaders included: Autodesk, Inc; Ben & Jerry’s; Char Magaro Designs; Danone North America; DSM Firmenich North America; Franklin Energy; Good Start Packaging; Habitus Incorporated; Haverford College; Miller/Howard Investments, Inc.; New Balance; New Jersey Sustainable Business Council; New York City Office of the Comptroller; Oaktree Development; Sonen Capital; Steve Harvey Law, LLC; Studio G Architects; Sunowner Inc.; Sustainable Advisors Alliance LLC; The Green Engineer, Inc; The Stella Group, Ltd.; TripZero; Unilever United States; and Zevin Asset Management.

The Green Energy Consumer Alliance comments advocated for ambitious emission reduction targets and raised additional matters to consider in this program review requesting a presentation with sufficient time for public input on topics such as the cost containment reserve, emission containment reserve, allowance banking beyond 2035 in the zero by 35 scenario, and environmental justice. 

It is interesting to me that there are non-profit organizations who submitted comments.  The “Business Leaders” comments were “organized” by Ceres who is “transforming the economy to build a just and sustainable future.”   Ceres managed to get funding to submit comments on RGGI from companies that are only peripherally affected.  The Ceres IRS Form 990 says that they have 221 employees, a $22 million payroll, and spent $2.3 million for fundraising in 2022.  Apparently, they have a successful business model because they got 24 companies to sign the comment letter and presumably provide funding for the privilege.  On the other hand, the Green Energy Consumer Alliance has only 23 employees, a $1.3 million payroll, and only spent $60K for fundraising.  Their motivation for commenting was similar.

Supporting Advocacy

Seven organizations submitted comments under the banner Frontline Communities in the Commonwealth of Pennsylvania.  Their letter made seven recommendations:

• Establish strong guidance and an implementable policy framework encouraging states to stablish, maintain, resource, and empower Equity Advisory Boards.
• Strongly encourage states to lead and complete equity analyses.
• Outline and encourage reinvestment priorities for frontline communities
• Improve public participation practices.
• Close loopholes that permit facilities with multiple small combustion turbines to avoid reducing overall emissions.
• Expand qualifying polluters and reject false solutions.
• Eliminate offsets in order to drive real emission reductions

I am not impressed with the content of these comments.  The relevant RGGI issues are addressed last, almost as an afterthought.  Moreover, they consist mostly of buzz words and slogans.  There are loopholes foisted on unsuspecting innocents that surely have major impacts but they never document what they are.  They reject false solutions like biomass, refuse-derived fuel, and trash incineration without acknowledging that there might be co-benefits associated with those technologies.

My impression is that their primary purpose for commenting is to plead for support for their organizations.  The first four recommendations all are linked to advocacy support which I am sure they will be glad to provide.  The comments go so far as to suggest that 100% of the revenues should be invested in front-line communities.  My comments emphasized the point that future emission reductions in the RGGI states are going to have to rely on wind and solar resources displacing the affected source operations which is going to be hard enough to do without a limitation on where the auction revenues must go.

Class by Themselves Comments

Comments by the Nature Conservatory rate their own section.  This is a global charity and their IRS Form 990 says that they have a total revenue of $1.3 billion, 4,052 employees, a $441 million payroll, and spent $146 million for fundraising in 2022.   On the face of it, these comments follow the narrative espoused by CERES and Green Energy Consumer Alliance.  Closer inspection shows that there is a self-serving exception to the points made by other advocates.  The comments also show an amazing level of naivety and incompetence as shown below.

The Nature Conservatory (TNC) comments addressed the “loophole” for generators greater than 25 MW which they said should be closed by expanding to all generators 10 MW and larger and requested additional modeling of carbon capture and storage rules to better understand CCS impacts to the RGGI program and affected communities. 

The offsets that other organizations consider “false solutions” are lauded:

TNC believes that the RGGI program could better utilize potential offset projects from natural climate solutions, helping achieve net-zero emissions while better valuing our natural environment on the pathway towards a clean economy.

Turns out that “TNC has more than 20 years of experience pioneering best practices for natural climate solutions and carbon projects around the world”.  Cynics like me think they want to expand their solutions to this market too.

The following comment was provided to address the proposal to change the compliance period:

There is considerable flexibility in allowance compliance for participating entities, and we would recommend that this program review consider adjusting the compliance period language towards annual compliance. Annual compliance criteria would better account for annual fluctuations and market conditions in energy production, as well as create better stability in allowance prices and funding programs. Currently, compliance is evaluated at the end of each three-year control period by RGGI Inc through their CO2 Allowance Tracking System (COATS), with fines levied by participating states on facilities for non-compliance. RGGI states also have an interim control period compliance requirement, which requires each participating facility to hold allowances equal to 50 percent of their emissions by the end of the 2nd year of the compliance period. Such flexibility allows for secondary allowance markets to benefit from compliance requirements, but these benefits did not extend to participating states. During the RGGI September 26 public meeting, this was a topic supported by the RGGI states, and they concluded that the benefits of implementing annual compliance outweigh any loss of flexibility.

This word salad of regurgitated text from the RGGI documents is embarrassing.  The first sentence just repeats the arguments in the Topics for Consideration document.  The next sentence: “Annual compliance criteria would better account for annual fluctuations and market conditions in energy production, as well as create better stability in allowance prices and funding programs” is wrong on every count.  Carbon dioxide emissions from RGGI affected sources are directly related to how much the plants operate and weather correlates strongly with electric load and plant operation.  The three-year compliance period smooths out the annual fluctuations.  An annual compliance period cannot account for annual fluctuations which means the market conditions will be more volatile.  A market that bounces between annual deficits and surpluses is anything but stable.  The paragraph goes on to accurately describe the flexibility mechanisms in the three-year compliance period approach.  Then the author states: “Such flexibility allows for secondary allowance markets to benefit from compliance requirements, but these benefits did not extend to participating states”.  I think it is a mistake to disconnect the secondary allowance market from the market as a whole because the secondary and primary markets both have to be healthy for the RGGI auction system to work well.  The RGGI States certainly benefit from a healthy market unless the line of reasoning is that if the market is uncertain and causes higher allowance prices the RGGI States make more money.  That would indicate a failure to understand that citizens of the RGGI states will pick up the tab. 

Incredibly the comments get worse.  Under the topic of “Environmental Justice Considerations” the recommendation is to “Increase funding for emission monitoring programs to install monitors for more participating generators.”  The rationale states:

Participating generators are required to hold allowances equal to their CO2 emissions, as determined by the EPA’s Clean Air Markets Program (CAMP) monitors or a calculation of heat rate and fuel consumption. However, over two-thirds of RGGI plants do not have any active air quality monitoring sites within a 3-mile radius, and miscalculation of emissions based on available data make accurate representation of actual emissions difficult.

This line of reasoning for air quality monitoring has been advocated by naïve environmental justice advocacy organizations but I would expect that an organization that employs thousands would have a better understanding of the basics of air quality reporting and permitting.  All RGGI sources report their emissions to EPA in a system that meets the highest levels of transparency and accuracy.  There is a red herring argument that implies that because there isn’t an air quality monitor near the RGGI sources that they are getting away with disproportionate impacts.  All RGGI sources have had to repeatedly prove in their permit applications that their emissions will not contravene the National Ambient Air Quality Standards (NAAQS).  The modeling and analyses associated with those demonstrations trace back to periods when there were air quality monitoring systems around many of the facilities.  Once the ambient monitoring proved that there were no issues with the NAAQS then the ambient monitoring requirements were dropped. 

The last sentence displays a complete lack of understanding relative to emissions and air quality impacts.  The phrase “miscalculation of emissions based on available data make accurate representation of actual emissions difficult” suggests that if ambient air quality measurement were available then better estimates of actual emissions would be possible.  While it is possible to estimate emissions from air quality measurements, the methodology is loaded with uncertainty.  In order to do the calculation, you must also monitor the meteorological conditions between the source and monitoring station.  Given the variation in wind speed, wind direction, and stability those variations make this calculation approach likely to produce results laden with errors and uncertainty.  Air quality monitoring in disadvantaged communities can address local emissions issues but I am confident that issues with the air quality standards due to the RGGI sources will not be found.  Using air quality monitoring do estimate emissions from RGGI sources is an absurd proposition given that the RGGI sources directly measure emissions in the stacks themselves using equipment and standards that meet the very high standards of the EPA.

RGGI Affected Sources

There were two affected source comment letters.

Tenaska, Inc. owns and operates gas turbines in MA, PA and VA.  Their comments argued against an annual compliance period and they suggested adding an auction after the end of the year but before the compliance true-up date.  Their comments on the Electricity Sector Analysis – Budget Cap and Allowance Supply Scenarios stated:

RGGI is evaluating four budget cap/allowance supply scenarios, including two that would reach zero by 2035 and 2040. We strongly caution adoption of either of these scenarios given the strong uncertainty regarding availability of zero-carbon resources and the need for fossil-based, dispatchable resources to provide the required generation and to support certain electrification goals.

We also point out the scope of the EPA’s proposed CAA §111 rules for new and certain existing fossil fuel-fired electric generating units . The new source rule would not require emission reductions for units with annual capacity factors less than 20% and would not require 100% reductions from any new source. The existing unit proposal would cover only large, frequently operated units. The zero by 2035/2040 RGGI proposals would prohibit any of these units, new or existing, from operating after those dates. Several ISOs/RTOs expressed concern with resource adequacy regarding the CAA §111 proposal and would no doubt have serious concerns with the RGGI proposals. We recommend RGGI take a cautious approach when attempting to predict the power generation needs and resource-mix more than a decade into the future. RGGI need not be more stringent than the EPA.

The Environmental Energy Alliance of New York is an ad hoc, voluntary group of New York electric generating companies, transmission/ distribution companies and other providers of energy services that address environmental initiatives.  In the interest of full disclosure, I was the Director of the organization from 2010 to 2017 and still provide technical support as needed.  The comments from the Alliance addressed several issues.  They argued that the flexibility inherent in the three-year compliance period was needed in the future because of upcoming changes to the RGGI allowance market and pointed out that the RGGI States rationale for changing was weak.  A big concern of the New York affected sources is that changes to the allowance trajectory schedule should address the recent cancellations of substantial amounts of offshore wind.  That affects the operations of RGGI-affected sources and should be considered by the RGGI modeling evaluation.  Another component of the transition to “zero-emissions” resources is the need for a presently unavailable dispatchable emissions-free resource.  Ignoring the need for this resource before 2035 risks underestimating the capacity of wind and storage required to maintain the grid so this should also be considered in the RGGI modeling evaluation. 

Pragmatic Environmentalist Comments

I also submitted personal comments that I described  in an earlier post.  I explained that I am afraid that the RGGI States are placing so much reliance on their analysis results that they could propose unrealistic allowance reduction trajectories.  It is naïve to treat any model projections of the future energy system without a good deal of skepticism because the electric grid is so complex and currently dependent upon dispatchable resources but the anticipated future grid will rely on wind and solar resources that cannot be dispatched.  Replacement of RGGI-affected sources with intermittent and diffuse wind and solar resources that cannot be dispatched is an enormous challenge with likely unintended consequences.  Therefore, the modeling results should be considered relative to historical observations. 

Since the beginning of the RGGI program, RGGI funded control programs have been responsible for less than seven percent of the observed reductions.  My analyses indicate that most of the observed reductions of emissions are due to fuel switching from coal and residual oil to natural gas and that there are few opportunities for additional switching reductions in most RGGI States.  That means that future reductions are going to have to rely on displacing existing generator operations with zero-emission alternatives.  Ostensibly the auction revenues from RGGI are supposed to encourage development of those alternatives.  I have  found that when the sum of the RGGI investments is divided by the sum of the annual emission reductions the CO2 emission reduction efficiency is $927 per ton of CO2 reduced.  I think that cost per ton reduced is too high to afford to develop the resources necessary for the reductions required to meet the aggressive allowance trajectories proposed.

Conclusion

There were not a lot of comments submitted in response to RGGI Third Program Review.  Most of the comments that were submitted addressed special interests including issues with biomass, explicitly supporting their emissions trading business model, and implicitly supporting the narrative associated with energy transition club that is a big business nowadays. I was disappointed that comments from Pennsylvania advocacy organizations ranked handouts to organizations above the needs of the disadvantage communities they claim to represent. The Nature Conservancy comments were outstanding in a bad way because they not only explicitly pandered to their offsets products but also showed a lack of understanding of air pollution control strategies and requirements that made their comments worthless.

My concerns and those of the affected sources are associated with the future viability of RGGI. The modeling suggests that aggressive allowance reduction trajectories are feasible.  I do not think that the RGGI States acknowledge that the program has not been the primary driver of observed emission reductions and that the auction revenues to date have not been cost-efficient which calls that conclusion into question.  Furthermore, the modeling has not addressed concerns associated with the expectations of zero-emissions technology deployment.  Unless these concerns are considered in the Third Program Design Review recommendations there may be adverse ramifications including higher than expected prices and compliance issues.