Post on 06-Aug-2020
The Regulatory Assistance Project (RAP)TM
The RGGI System and Carbon Market Design
National Capital Area, Association for Energy Economics20th Annual Conference
Presented by David Littell
April 13, 2016
Emissions Trading Around the World
2
FIGURE 0.1 Emissions Trading Around the World
ETS in forceETS scheduled ETS considered
RussiaManitoba
Ontario Québec
Washington European SwitzerlandUnion
Ukraine
Kazakhstan Republic Tianjin of KoreaBeijing
California
RegionalGreenhouse Gas Initiative (RGGI)
Turkey
China HubeiChongqing
Mexico
JapanSaitama TokyoShanghaiTaiwanThailandShenzhenVietnam Guangdong
BrazilRio de JanieroSão Paulo
ChileNew Zealand
Source: ICAP 2016i.
Regional Greenhouse Gas Initiative - RGGI
3
Image from CNY Energy Challenge
Regional Greenhouse Gas Initiative - RGGI
• Northeast and Mid-Atlantic states cap and reduce carbon dioxide emissions from the power sector– Power plants 25 MW or greater to hold one CO2 allowance for each
ton of CO2– Three-year control periods starting with 2009-2011, currently in
third control period (2015-2017)– 2015 first year of interim compliance
• CO2 Cap: 86.5 million short tons in 2016, and declines 2.5 percent each year until 2020– Two interim adjustments to the cap (2014-2020) to account for
banked allowances– 2016 RGGI adjusted cap is 64.6 million short tons– Cost containment reserve (CCR) of 10 million allowances
4
RGGI Mechanics in Brief
• Quarterly regional CO2 allowance auctions– CO2 allowances are issued by each state– Compliance occurs at the state level– One tradable CO2 allowance market - CO2 allowances are
fungible across the multi-state region– CO2 allowances issued by any participating state can be used for
compliance in any of the participating states
• Auction proceeds invested by the states • Centralized allowance tracking and emissions tracking
platform (RGGI COATS)— Market monitoring of CO2 allowance market— Limited use (3.3%) of offsets
5
RGGI States: Pollution Reductions with Economic Growth
6
RGGI Experience: Environmental Benefits
• Reinvestment of auction proceeds helps reduce GHG and traditional Clean Air Act pollutant emissions
— RGGI power sector CO2 emissions declined over 45 percent since 2005
• By 2020 RGGI power sector emissions projected 50 percent lower than 2005
• RGGI cap helps drive transition to cleaner fuel and energy sources
― In 2014, almost half of total power generation in the RGGI states was clean or renewable
7
RGGI’s Market-Based System
• CO2 allowance auctions are open to all prequalified bidders
• After seven years, no evidence of anti-competitive conduct
• 31 quarterly auctions held since September 2008– Total of 815 million CO2 allowances sold
• CO2 allowance auction clearing prices have ranged from $1.86 to $7.50.
8
RGGI Auction Clearing Prices Summary
9
RGGI Addition: Market Monitor
• RGGI retains Potomac Economics as an independent market monitor (MM)
• MM issues reports on each auction with aggregate data on the auction results
• MM reports quarterly on the secondary market• MM issues annual report on the RGGI allowance
market• Consistently found no evidence of market
manipulation or collusion
10
Firms with Different Abatement Costs
11
Marginal Savings from Emissions for High-Cost Corp. (Avoided Marginal Abatement Costs, MAC ) H
Low-Cost Inc. (L) and High-Cost Corp. (H) have very different marginal savings from emissions given very different Marginal Abatement Cost curves (MAC)
Marginal Savings from Emissions for Low-Cost Inc. (Avoided Marginal Abatement Costs, MACL)
High-Cost Corp.’s curve is steeper; its savings from not abating the 50th ton of emissions is almost twice as high as for Low- Cost Inc.’s. Its cost of having to go to zero emissions is too high to show on this graph.
0 50 100
Emissions from High-Cost Corp.
100 50 0 Emissions from Low-Cost Inc.
FIGURE 0.2 Example of Two Firms with Different Abatement Costs
Note: Two firms with different “abatement” (emissions reduction) costs: High-Cost Corp., with emissions shown from left to right, and hence abatement from baseline emissions in reverse, has a steeper incremental or marginal abatement cost curve and thus steeper marginal savings from emissions; Low-Cost Inc., with emissions plotted from right to left, has a flatter curve. Note that the total emissions are the same (and equal to 100) at every point along the horizontal axis; what changes is how those emissions are allocated between the two firms.
Cost
per
uni
t of C
O2
equi
vale
nt a
bate
d
International Bank for Reconstruction and Develop., The World Bank, PMR, ICAP, Emissions Trading in Practice, p. 26
(Marginal Savings fromEmissions for High-Cost Corp. (Avoided MarginalAbatement Costs, MAC )HLow-Cost Inc. (L) andHigh-Cost Corp. (H) have very different marginal savings from emissions given very different Marginal Abatement Cost curves (MAC)Marginal Savings from Emissions for Low-Cost Inc. (Avoided Marginal Abatement Costs, MACL)High-Cost Corp.’s curve issteeper; its savings from not abating the 50th ton of emissions is almost twice as high as for Low- Cost Inc.’s. Its cost of having to go to zero emissions is too highto show on this graph.050100Emissions from High-Cost Corp.100500Emissions from Low-Cost Inc.FIGURE 0.2 Example of Two Firms with Different Abatement CostsNote: Two firms with different “abatement” (emissions reduction) costs: High-Cost Corp., with emissionsshown from left to right, and hence abatement from baseline emissions in reverse, has a steeper incremental or marginal abatement cost curve and thus steeper marginal savings from emissions; Low-Cost Inc., with emissions plotted from right to left, has a flatter curve. Note that the total emissions are the same (and equal to 100) at every point along the horizontal axis; what changes is how those emissions are allocated between the two firms.) (Cost per unit of CO2 equivalent abated)
Marginal
Savings
from
Emissions
for
High
-
Cost
Corp.
(
A
voided
Marginal
Abatement
Costs,
MAC
)
H
Low
-
Cost
Inc.
(L)
and
High
-
Cost
Corp.
(H)
have
very
different
marginal
savings
from
emissions
given
very
different
Marginal
Abatement
Cost
curves
(MAC)
Marginal
Savings
from
Emissions
for
Low
-
Cost
Inc.
(
A
voided
Marginal
Abatement
Costs,
MA
C
L
)
High
-
Cost
Corp.
’
s
curve
is
steeper;
its
savings
from
not
abating
the
50th
ton
of
emissions
is
almost
twice
as
high
as
for
Low
-
Cost
Inc.
’
s.
Its
cost
of
having
to
go
to
zero
emissions
is
too
high
to
show
on
this
graph.
0
50
100
Emissions
from
High
-
Cost
Corp.
100
50
0
Emissions
from
Low
-
Cost
Inc.
FIGURE
0.2
E
x
a
m
p
l
e
o
f
T
w
o
F
ir
m
s
w
i
t
h
D
i
f
f
e
r
e
n
t
A
b
a
t
e
m
e
n
t
C
o
s
t
s
No
t
e:
T
wo
firms
with
dif
f
e
r
ent
“aba
t
ement”
(emi
s
sions
r
edu
c
tion)
c
osts:
High
-
Cost
Cor
p
.,
with
emi
s
sions
shown
f
r
om
left
t
o
rig
h
t,
and
hen
c
e
aba
t
ement
f
r
om
ba
s
eline
emi
s
sions
in
r
e
v
er
s
e
,
has
a
s
t
eeper
inc
r
emental
or
ma
r
ginal
aba
t
ement
c
ost
cu
r
v
e
and
thus
s
t
eeper
ma
r
ginal
savings
f
r
om
emi
s
sions;
Low
-
Cost
Inc.,
with
emi
s
sions
plot
t
ed
f
r
om
rig
h
t
t
o
left,
has
a
flat
t
er
cu
r
v
e
.
No
t
e
that
the
t
otal
emi
s
sions
a
r
e
the
same
(and
equal
t
o
100)
at
e
v
e
r
y
point
along
the
horizontal
axis;
what
changes
is
how
tho
s
e
emi
s
sions
a
r
e
alloca
t
ed
between
the
two
firms.
Cost
per
unit
of
C
O
2
equivalent
abated
Marginal Savings from
Emissions for High-Cost
Corp. (Avoided Marginal
Abatement Costs, MAC )
H
Low-Cost Inc. (L) and
High-Cost Corp. (H) have
very different marginal
savings from emissions
given very different
Marginal Abatement Cost
curves (MAC)
Marginal Savings from
Emissions for Low-Cost
Inc. (Avoided Marginal
Abatement Costs, MAC
L
)
High-Cost Corp.’s curve is
steeper; its savings from
not abating the 50th ton
of emissions is almost
twice as high as for Low-
Cost Inc.’s. Its cost of
having to go to zero
emissions is too high
to show on this graph.
0 50 100
Emissions from High-Cost Corp.
100 50 0
Emissions from Low-Cost Inc.
FIGURE 0.2 Example of Two Firms with Different Abatement Costs
Note: Two firms with different “abatement” (emissions reduction) costs: High-Cost Corp., with emissions
shown from left to right, and hence abatement from baseline emissions in reverse, has a steeper incremental or
marginal abatement cost curve and thus steeper marginal savings from emissions; Low-Cost Inc., with emissions
plotted from right to left, has a flatter curve. Note that the total emissions are the same (and equal to 100) at
every point along the horizontal axis; what changes is how those emissions are allocated between the two firms.
Cost
per
unit
of
C
O
2
equivalent
abated
Applying a Uniform Standard to Each Firm
12
International Bank for Reconstruction and Develop., The World Bank, PMR, ICAP, Emissions Trading in Practice, p. 27
Comparing Trades to Prescribed Allocations to Each Company
13
International Bank for Reconstruction and Develop., The World Bank, PMR, ICAP, Emissions Trading in Practice, p. 27
RGGI’s Market-Based System
• RGGI states have distributed approximately 90% of allowances by auction
• More than $2.4 billion in auction proceeds through 31 auctions
• Invested more than $1 billion of auction proceeds in range of energy efficiency, clean and renewable energy, direct bill assistance, GHG abatement programs
14
RGGI Experience: Consumer Benefits
• More than 3.7 million households and 17,800 businesses are participating in RGGI proceeds-funded programs
• RGGI proceeds invested in energy efficiency, clean and renewable energy, energy bill assistance and GHG abatement through 2013 returning $2.9 billion in lifetime bill savings to consumers
15
RGGI Experience: Economic Benefits
16
• An independent 2015 report by the consulting firm Analysis Group found that RGGI’s second three years are creating:̶ $1.3 billion in net economic benefit̶ 14,200 additional job-years
• In addition to benefits from RGGI’s first three years:̶ $1.6 billion in net economic benefit̶ 16,000 additional job-years
• Benefits in each state – but more with higher energy efficiency investments
About RAP
The Regulatory Assistance Project (RAP) is a global, non-profit team of experts that focuses on the long-term economic and environmental sustainability of the power sector. RAP has deep expertise in regulatory and market policies that:
Promote economic efficiency Protect the environment Ensure system reliability Allocate system benefits fairly among all consumers
Learn more about RAP at www.raponline.org
David Littelldlittell@raponline.org 207 592 1188
mailto:dlittell@raponline.org
The RGGI System and �Carbon Market DesignEmissions Trading Around the WorldRegional Greenhouse Gas Initiative - RGGIRegional Greenhouse Gas Initiative - RGGIRGGI Mechanics in Brief�RGGI States: Pollution Reductions �with Economic Growth�RGGI Experience: Environmental BenefitsRGGI’s Market-Based SystemRGGI Auction Clearing Prices SummaryRGGI Addition: Market MonitorFirms with Different Abatement CostsApplying a Uniform Standard to Each FirmComparing Trades to Prescribed Allocations to Each CompanyRGGI’s Market-Based SystemRGGI Experience: Consumer Benefits�RGGI Experience: Economic Benefits�Slide Number 17