Vicky Sullivan

1
Climate Change Policies

• Vicky Sullivan
• Presentation to EEI TWMS
• July 1, 2009

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Climate Change Policies -- Outline

• Climate Change (Cap and Trade) Legislation for
  greenhouse gases (GHGs) (combined with Renewable
  Electricity Standards)
• Regulatory Approaches
• International Negotiations

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Cap and Trade Renewable Electricity Standard
(RES) Legislation

• House
• Waxman-Markey Bill Reported by House Energy and
  Commerce Committee May 21
• Reported by full House June 26 by a vote of
  219-212
• Senate
• Energy Committee has reported energy legislation
  including RES (and transmission and carbon
  capture) separately
• Senate Environment and Public Works to take up
  Waxman-Markey in July

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Cap Trade Basics
20,000 Excess Allowances
Small auction for new entrants, etc.
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Waxman-Markey Greenhouse Gas (GHG) Caps and
Allowance Allocation

• GHG caps
• 3 below 2005 levels by 2012
• 17 below 2005 levels by 2020
• 42 below 2005 levels by 2030
• 83 below 2005 levels by 2050
• Allowance allocation
• 30 of cap to electricity local distribution
  companies after carve-outs for merchant coal,
  IPPs with long-term contracts
• ½ based on emissions associated with sales ½
  based on sales

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Allocations Under Waxman-Markey (simplified to
show wholesale allocation)
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Waxman-Markey Carbon Capture and Sequestration

• 1 billion/year for demonstrations raised
  through wires charge (coal - 0.00043/kWh)
• Carbon Capture and Sequestration bonus allowances
  (5 of cap)
• New coal plant requirement - 50 capture if
  finally permitted 2009 2020 (once 4 GW on the
  ground) gt2020, 65 capture

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Waxman-Markey Offsets

• 2 billion tons total allowed
• 1 billion domestic, 1 billion international
• International can be increased to 1.5 billion if
  EPA finds that less than 900 million domestic
  offsets will be available
• Each companys use of offsets limited to about 30
  percent of its compliance obligation

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Offsets Definition

• Concept - Offsets are a measurable reduction,
  avoidance or sequestration of greenhouse gases by
  a source not covered by a cap-and-trade program
• Administration - Offsets must be approved,
  verified, and recorded before they are granted
  status as substitutes for allowances.
  Cap-and-trade legislation typically allows
  offsets to substitute for a portion of a covered
  entitys allowance surrender obligation

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Offset Projects

• Basic idea. Emission reductions for offsets
  typically result from a project having been
  undertaken
• Measurement. A projects reduction is typically
  measured by comparing what net emissions would
  have been without the project (which cannot be
  observed) to what net emissions are with the
  project
• Key validity requirements
• Additionality. The project must cause emissions
  to be less than would be the case without the
  project that is, it must result in additional
  emission reductions. In particular, the project
  cannot have been otherwise required by law or
  regulation (e.g., landfill methane flaring could
  already be required)
• Permanence. There must be some assurance that
  the reduction/avoidance/sequestration is
  permanent (what if the newly grown forest burns
  down?)
• Verification. The projects emission reductions,
  additionality, and permanence must be verified by
  a third party before it can be considered for
  regulatory approval

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Domestic Offset ExamplesLimited because
cap-and-trade covers 85 of emissions

• Agriculture. Livestock methane, tillage practices
• Forestry. Afforestation (planting trees on
  non-forested land), reforestation. Note that
  legislation typically hasnt allowed domestic
  avoided deforestation to count for offsets
• Landfills. Methane capture. Only applies to
  smaller landfills because larger ones are
  required to capture and flare methane already (so
  not additional)

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International Offset Examples

• Industrial process changes
• Most of the inexpensive Clean Development
  Mechanism (CDM) offset credits have come from
  industrial process changes in China (no longer
  available)
• Energy efficiency, renewable energy
• Waste utilization, fuel switching
• Fugitive emissions, gas flaring
• Land use, land use change, forestry (LULUCF)
• Waxman-Markey dedicates money from some allowance
  sales to funding this type of project (if funded
  in this way, a project would not create WM
  creditable offsets)
• EU ETS does not credit forestry offsets
• Kyotos Clean Development Mechanism allows any
  type of project as long as the project presents
  an acceptable measurement procedure

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Offsets in the EU ETSCDM has been a relatively
small part of European market
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Waxman-Markey other provisions

• Pre-emption from some (not all) Clean Air Act
  regulation of GHGs
• Energy efficiency requirements (lighting
  standards, etc.)
• Incentives for development of PHEV infrastructure
• Incentives for smart grid deployment
• Peak load reduction goal
• FERC required to adopt national grid planning
  principles
• Offsets for trade-exposed industries

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Impacts of Waxman-MarkeyElectricity Generation
Source CRAI study for National Black Chamber of
Commerce, May 2009
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H.R.2454 Household Cost of Energy Electricity,
Natural Gas and Motor Fuel at the Pump
Source CRA analysis of H.R.2454 on behalf of
National Black Chamber of Commerce
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Waxman-Markey Combined Renewable Electricity
Standard (RES)/Energy Efficiency Resource
Standard

• Applies to any retail electricity supplier who
  sells gt 4 million MWhr/yr
• 20 total by 2020 (begins 2012 at 6)
• Hydro, new nuclear, CCS removed from baseline
• Efficiency can count for 25 of the requirement
  (Governors can petition to allow 2/5 from
  efficiency)
• Renewable Energy Credits generally awarded to
  generator
• Renewables include wind, solar, geothermal,
  biomass, biogas/biofuels, marine, hydrokinetic,
  incremental hydropower since 1988, and qualified
  waste-to-energy, landfill, and wastewater
  treatment gas
• 2.5 cent/kWh Alternative Compliance Payment

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Potential EPA Regulatory Program

• EPA issued proposed finding that GHG emissions
  from new motor vehicles endanger public health
  and welfare on April 24, 2009)
• On June 20, 2009, EPA granted the California
  waiver (meaning that CA can adopt more stringent
  tailpipe standards for GHGs)
• EPA likely to finalize endangerment finding and
  issue new motor vehicle requirements later this
  year or early next
• Air permitting requirements for GHGs triggered
  once GHGs are regulated air pollutants
• If Congress doesnt enact GHG legislation, EPA
  will likely move toward regulation of stationary
  sources in 2010

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International Negotiations

• UN Framework Convention on Climate Change adopted
  in 1992 (U.S. is a party)
• Goal no anthropogenic interference with the
  climate system
• U.S. is not a party to Kyoto Protocol (which went
  into effect in 2005
• Kyotos first commitment period is 2008-2012
• Intense negotiations this year, culminating in
  Copenhagen in December, as to next phase of Kyoto

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