Regional Greenhouse Gas Initiative (HB 1434)

Presentation toHouse Science, Technology, & Energy Committee

January 10, 2007New Hampshire Department of Environmental

Services Thomas S. Burack, Commissioner

Robert R. Scott, Director Air Resources Division

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Climate ChangeImpacts on New Hampshire

• Trends indicate NH is experiencing impacts now

• Extreme storm events

• More rain in winter• Less snow cover

Average Winter Temperature in the Northeast 1899-2000

Time series represent areally weighted average of 56 meteorological stations.

Flooding in NH

October 2005 May 2006April 2007

• Peak flows in many rivers greater than 100 year flood

• Millions of dollars in state and individual losses

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Future Economic Impacts to New HampshireNortheast Climate Impacts Assessment (2007)

By late in the century (without reducing GHG emissions)

• Winter snow season cut in half• Sea-level rise up to nearly three feet• More than 60 days with temperatures over 90°F in

most cities • 4 to 28 days with temperatures over 100°F

(compared with one or two days per year historically).

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What if we don’t act now to reduce green-house gases?

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Global Cost of No Action(Stern Review UK Treasury 2006)

• Extreme weather alone – 0.5-1% world GDP annually• Total cost of taking no action equivalent to reduction

in consumption per head of 5-20% annually• Less costly to take actions now than to delay• Risk to world economy on the order of multi-national

world conflict• Insurance market already reacting

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UK Experience

• All three political parties working together to address climate change

• 1990-1999 14% reduction in GHG emissions; 14.9% increase in economic growth; 5% increase in jobs

• Confederation of British Industry – recent economic report on growth in emerging technologies and energy services (very supportive of climate change policies)

• Specific examples of companies transforming from skeptics to champions of aggressive energy efficiency policies

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NH CO2 (equivalent) Emissions by Sector

2004

Electric Utilities

34%

Commercial

8%Industrial

7%

Residential

15%

Transportation

34%

Agriculture,

Forestry and

Waste

2%

Transportation

Residential

Industrial

Commercial

Electric Utilities

Agriculture, Forestry

and Waste

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RGGI Cap & Trade Program

• Regional cap on emissions from fossil-fueled power plants >25 megawatts

• Cap (10 state region) 188 million allowances • 1 allowance = 1 ton• NH Budget 8.6 million allowances• Majority of allowances will be sold in regional

auction

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Compliance

• Power plants must have enough allowances to equal their emissions by the end of the three year period

• Can buy allowances (regional auction) or offset allowances

• Unlimited banking of allowances

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RGGI impact on NH

• 9 other states going forward with RGGI

• Regional energy prices will be affected by RGGI whether NH participates or not

• Only way to mitigate costs is to participate and use auction revenues

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Regional Leadership

• Driving federal action• Western Climate Initiative• Mid-western initiative (Illinois, Iowa, Kansas,

Minnesota, Michigan, Wisconsin, and Manitoba)

• Investment in more efficient energy market is positive for NH regardless of climate change

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RGGI is Significant

• RGGI would represent the seventh highest emitting developed country

• The RGGI cap (188,076,976 tons) is similar to the emissions of Australia, France, or Italy

• There is no “silver bullet” but RGGI is part of the “silver buckshot”

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Benefits of HB 1434• Helps to mitigate long-term energy costs via greater

investment in energy efficiency

• Creates a market signal that encourages development of cleaner and, in many cases, more local energy sources

• Increases our energy independence with more local energy sources: keeping more dollars local

• Starts to mitigate our GHG emissions to avoid the most deleterious projections of climate change impacts

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Downside of not joining RGGI• Roughly half of NH’s supply is purchased from

the regional market

• As a consequence, NH electric prices will be affected by RGGI

• No benefit of sale of NH allowances

• No seat at table – no influence on program

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Energy Efficiency – Regional Priority

• Record peak demand in summer >28,000 MW• Peak demand increase twice as fast as average load

growth• Costly new capacity may be needed to meet demand

reached for only a few hours or days our of the year• Reducing electricity use by 5% during peak times

will save consumers $580 million a year (ISO – NE June 2006)

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Major Potential for Energy Efficiency Improvements

• RGGI bill proposing a “fuel-neutral” fund

• Technology continuing to improve

• Recognize opportunities vary

• Increased energy efficiency overall – can avoid costly new capacity – reducing everyone’s energy costs

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Light Bulb Evolution

Incandescent CFL CFL Cold Cathode LEDElectric Demand 100 Watts 25 Watts 18 Watts 8 Watts 2.2 WattsHours Use 4 hrs/day x 365 4 hrs/day x 365 4 hrs/day x 365 4 hrs/day x 365 4 hrs/day x 365Annual kWh Usage 146 37 26 12 3Annual kWh Savings 110 120 134 143Annual Cost (@ $0.149) $21.75 $5.44 $3.92 $1.74 $0.48Annual $ Savings $16.32 $17.84 $20.01 $21.28

Annual CO2 Reduction (lbs) 121 133 149 158

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Fluorescent Light Evolution

34–40 Watts 32 Watts 28 Watts

1950’s – 1980’s late 1980’s – 1990’s Last 5 yrs

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ISO-NE Comments (D. LaPlante presentation 11-9-07)

Should RGGI work?Yes – markets have helped meet environmental policy objectives• Transparent prices enable potential investors to determine

value of projects and allowances• Open access encourages a large number of developers to

participate in markets• Stakeholder process enable market changes to meet policy

objectives• Regional Transmission Planning provides a for(u)m to support

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ISO-NE Comments (D. LaPlante presentation 11-9-07)

RGGI rules compatible with continued reliable operation of the system

• Allowances are not required before the fact to generate• Generators have many opportunities to acquire allowances

– Before the fact in auctions or the secondary market– After the fact in two month window after close of

compliance period– As a last resort, future allowances at a rate of 3 future

allowances for 1 current period allowances can be used

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UNH Economic Analysis 2007

• NH participation is lower cost overall to NH than not joining

• Lowest long-term net utility cost is to auction allowances and put revenues into energy efficiency

• Positive impact on employment and the overall NH economy

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Net Rate Impact – All NH Utilities 

2009 2012 2015 2018

Allowance Price $ 2 $ 4 $ 6 $ 8

100% Efficiency $ 14,376,318 $ 13,659,299 $ (1,800,436) $(31,968,822)

Don't Join $ 6,769,305 $ 14,922,360 $ 24,575,400 $ 35,806,006

Net Change from Joining RGGI $7,607,013 ($1,263,061) ($26,375,836) ($67,774,828)

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Average Monthly Change Residential Household Bill - All NH Utilities

2009 2012 2015 2018

Allowance Price $ 2 $ 4 $ 6 $8

100% Efficiency $ 0.76 $ 0.69 $(0.09) $ (1.46)

Don't Join $0.36 $ 0.75 $1.18 $ 1.63

Net Change from Joining RGGI $0.40 ($0.06) ($1.27) ($3.09)

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Potential Mitigation of Monthly Business Electricity Costs

2009 2012 2013 2015 2018

Small Business

$1.29 $(0.20) $(1.90) $(4.00) $(9.78)

Large Business

$159 $(25) $(234) $(493) $(1,205)

% Change

0.4% -0.07% -0.6% -1.3% -3.2%

Net change from 100% investment in energy efficiency compared to not joining RGGI

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Opportunity for Economic Development

• NH tradition of innovation and leadership

• NH needs to foster R&D development of new technologies and related ancillary services

• Current examples – Power Span

– GT Solar

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Regional Greenhouse Gas Initiative (www.rggi.org)

• Clean Power Act – Cap on PSNH fossil fuel units (Bow, Portsmouth,

Newington) – 5,425,866 tons

• RGGI – 10 state MOU– PSNH (Bow, Portsmouth, Newington)

– Granite Ridge (Londonderry)

– Newington Energy (Newington)– 8,620,460 tons

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RGGI Cap Levels

• 2-Phase CO2 Caps (gradual, keeps cost low)– stabilization 2009 – 2014 (no absolute

reductions, but reductions from business-as-usual)

• Phase I Regional Cap = 188,076,976 tons• Phase I NH Budget = 8,620,460 tons

– 10% reduction 2015 - 2018 • (2.5% per year for 4 years)

• Built-in Review of Program in 2012

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RGGI Compliance Options

• Stabilize/Reduce EmissionsEnergy efficiencyFuel switchingChanges in dispatchEmerging control technologies

– GreenFuel Emissions-to-Biofuels system

– CO2 capture & underground injection

• Buy allowances or offsets

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Types of RGGI Allowances

• Budgeted allowances purchased at auction

• Early Reduction: Emission reductions made prior to the start of a program.

• CO2 Offsets: A reduction from an activity (sector) outside or different than the activity (sector) being regulated.

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RGGI Offsets

• 1st set – methane capture, reduced loss of SF6 (electric equipment insulator), afforestation, end-use efficiency

• 2nd set – forest management• Limited to 3.3% of each source’s emissions• Offsets may come from RGGI region or from another

US state • Safety valves built in to increase use of offsets for

economic relief if necessary

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• 3-Year Compliance Period

• Banking (with typical tracking, monitoring, recordkeeping, and reporting requirements)

• Early Reduction Allowances

Compliance Flexibility Mechanisms

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House Bill 1434

• Includes all major provision of MOU

• Conversion of PSNH allowances under the Clean Power Act

• Proposes to auction remaining allowances

• Revenues to be used for energy efficiency

• Clean Power Act provisions will end 12-31-2008

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125-O:20 Establishing a Trading Program

• State budget of 8,620,460 tons (03-04 average emissions)

• By 2018, 7,758,414 tons• Applicable to all fossil-fueled generation > 25

Megawatts• Auction allowances (except those grandfathered to

PSNH as a result of Clean Power Act)• Can grant Early Reduction Allowances (Northern

Wood Project) • Can accept eligible offset allowances

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125-O:21 Compliance

• Power plants must have enough allowances to equal their emissions over a three year period

• Can buy allowances (regional auction) or offset allowances

• Limit on use of offset allowances

• Unlimited banking

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Limit on use of offset allowances• Allowance price <$7.00 (2005 dollars) – 3.3% • Allowance price >$7.00 but <$10.00 – 5% • Allowance price >$10.00 – can use for 10%

of their compliance obligation– compliance period extended to four years– can use European Union Emission

Trading allowances or Kyoto Clean Development Mechanism offset credits

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125-O:22 Greenhouse Gas Emissions Reduction Fund

• Administered by NH PUC with an advisory board• Used for energy efficiency, conservation, and demand

response • State administrative costs and to pay NH’s

contribution to RGGI regional organization• At least 5% of monies shall be used to assist low-

income residential customers to reduce total energy use (fuel neutral)

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Criteria for use of fund

• reduce GHG emissions from all fuels used to provide electricity, heating and cooling

• cost-effective• reduce peak electric load• promote market transformation, innovation, and

energy cost savings

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125-O:23 Conversion of Clean Power Act Allowances (PSNH)

• Capitol investment converted to the number of allowances that investment would have been able to pay on the “market”

• Unused allowances from 2007 and 2008 (PSNH emissions < Clean Power Act cap of 5,425,866)

• Emission reductions from the Northern Wood Project (will be granted as Early Reduction Allowances) – about 300,000 tons per year

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125-O:24 Set Aside for Voluntary Purchases of RECs

• Up to 1% of allowances set aside to retire emissions for voluntary REC purchases – if not used in any one year, put up for auction

• NH and NE businesses buy RECs to reduce their carbon emissions

• This provision protects the value of the RECs developed in NH, otherwise they will not be “certified” and have little or no value

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Contacts

Tom Burack thomas.burack@des.nh.gov

271- 2958

Bob Scott robert.scott@des.nh.gov

271-1088

Joanne Morin joanne.morin@des.nh.gov

271-5552