| Action | Reduce and Cap Carbon Dioxide from Fossil Fuel Fired Electric Power Generating Facilities (Rev. C17) |
| Stage | NOIRA |
| Comment Period | Ended on 7/26/2017 |
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I support regulation that substantially decreases the release of greenhouse gases, and I applaud Governor McAuliffe’s Executive Directive 11 to the DEQ to cap carbon emissions. Climate change is a threat to Virginians, to our cherished ecosystems, and to people around the world. Future generations will either remember us as heroes for averting the worst impacts of climate change, or they will marvel at our petty inability to pull together to fight a shared menace.
Capping carbon emissions from power plants and creating “trade-ready” allowances could significantly decrease Virginia’s carbon emissions, but only if designed well. If designed poorly, the regulations will be nothing more than window dressing giving the appearance of taking action while not truly addressing the problem. I advocate for the following design features and considerations in DEQ’s carbon regulation program, organized according to the categories outlined in the NOIRA.
Section I: DEQ has requested comments on (1) ideas to be considered in the development of this proposal
First and foremost, the cap must be set to reduce carbon emissions significantly.
Virginia is a part of the Climate Alliance of States that have pledged to uphold the Paris Climate agreement, under which the United States’ nationally determined contribution was to reduce all greenhouse gas (GHG) emissions by 26% of 2005 levels by 2025.[i] This level of reduction puts Virginia on a path towards an 80% reduction of GHGs by 2050 in order to avoid severe consequences of climate change. This pledge should determine the setting of the Virginia’s carbon cap. Given that no other regulation has been put forward yet to reduce carbon emissions or other GHG emissions from other sectors of Virginia’s economy, the majority of emissions cuts must come from the electricity sector.
Some business-as-usual (BAU) projections indicate that power sector carbon emissions will drop even without regulation. Note, however, that decreasing the rate of yearly emissions will not avert climate change if the emissions per year exceed the planet’s capacity to remove CO2 from the atmosphere. The purpose of the cap is to put downward pressure on carbon emissions, not to continue marching toward a climate crisis under BAU.
The cap should decrease predictably and annually so that utilities can make long-term plans to reduce carbon. Reliable data is essential to setting the cap and allocating emission allowances effectively. Utility companies have a conflict of interests in projecting energy demand and associated carbon emissions; data must be sourced and analyzed by an independent, objective entity.
The Distribution of Allowances Should Not Increase Barriers to Market Entry. Allowances should be distributed so that new generators, especially those that do not emit carbon dioxide, are able to enter the market on a level playing field with incumbent generators. Locking in allowance distribution based on historic emissions rates of incumbent generators would fail to shift Virginia’s power sector to lower carbon emissions in a fair, effective, or economically efficient manner.
Updated instate output-based allowance allocation would incentivize zero-carbon energy generation.
Distributing allowances based on updated energy output rather than on historic carbon emissions would create the incentive to lower carbon emissions. Each year, an energy generator would receive carbon allowances proportional to the previous year’s energy output, while also decreasing over time as the cap is lowered. Under this model, generators that generate a lot of low-carbon energy would receive more allowances than they would need, and would be able to earn revenue by selling allowances to generators that emit more carbon. As the cap is lowered over time and allowances become correspondingly more expensive, owners of high-carbon generators will have the financial incentive to find a less carbon-intensive method of electricity generation.
A further qualification of allowance allocation is that energy output should be measured based on electricity consumed by customers, rather than all electricity generated by the supplier. This stipulation encourages generators to burn only enough fuel to meet consumer demand, while discouraging them from burning excess fuel for the purpose of increasing the next year’s allocation of allowances. Generators receiving free allowances from the government must be required to sell all of their allowances, and then buy back their needed allowances, as described further in Section II.
Linking with a preexisting carbon market would minimize emissions leakage and reduce costs to ratepayers, assuming that revenue is used to benefit ratepayers, as discussed in Section II.[ii] For the purposes of the remainder of this comment, I assume that the carbon market in question is the Regional Greenhouse Gas Initiative (RGGI), though it need not be in order to achieve the goal of economically efficient emissions reductions. The more territory of the regional electricity transmission organization, PJM, that is included in RGGI, the less emissions leakage will occur. Additionally, linking to a market will increase the number of allowance trades, which will lead to “price discovery” of the true value of an allowance and increase economic efficiency.
Align program design features with RGGI to facilitate trades and collectively reduce carbon emissions. The size of one carbon allowance, the timing of allocation distribution, the 3-year period in which power plants have to retire their allowances, a price floor, a program review, and other characteristics should be synched up with RGGI’s schedule and parameters. Virginia must work collaboratively with RGGI states to ensure that linking with their carbon market does not adversely affect their own emissions reductions or negatively impact their economies.
Program Review at Regular Intervals is needed to ensure that the cap is at an effective level to apply pressure to reduce carbon emissions and to improve program design. As an example of the importance of program reviews, in 2012, RGGI decreased its cap by 45% to correct for an initial overabundance of allowances.[iii]
Section II: DEQ has requested comments on
It is critical that Virginia’s allocation of tradable carbon allowances be designed to lower carbon emissions in an economically efficient manner while also protecting residents from increased energy costs.
Revenue from Sales of Allowances Must Benefit Ratepayers. Investor-owned utilities need to use revenues from allowance sales to keep rates low for customers, rather than add to their profits. Co-ops can use their allowance revenues to the benefit of their member-owners.
The creation of a new market means the creation of new revenue. In no way should this revenue be permitted to increase investor-owned utility profits at the expense of ratepayers or of the commonwealth.[iv] Allowance recipients must be required to consign all of their allowances to an auction. Allowances can be granted to generators based on the previous year’s electricity output (not carbon emissions, as previously discussed), and generators would be required to sell all of their allowances. Generators that use carbon-intensive sources would have to buy back allowances from the market. Generators with lower-carbon or zero-carbon sources would not have to buy back so many allowances from the market, lowering their costs and increasing their revenue.
Utilities must be required to report their revenue from the carbon market to the State Corporation Commission, and then apply that revenue toward offsetting the costs of buying allowances, thus keeping electricity rates as low as possible for their customers.
Some of the revenue from allowance sales may need to be designated to offset the disproportionate effect of higher electricity rates on low-income customers. Any utility company claiming that carbon allowances are causing their electricity rates to increase must use carbon-market revenue to create utility-funded programs paying for energy efficiency improvements for low-income customers. Should electricity rates pass a certain threshold, utility companies should be required to provide direct assistance on electricity bills of low-income customers.
Positive or Neutral Impact on Frontline Communities is essential. Cap-and-trade programs for other types of pollutants have not always addressed the disproportionately heavy burden they place on communities living close to fossil fuel infrastructure. Fortunately, a carbon market is unlikely to create “hot spots” of pollution in frontline communities, because carbon dioxide is not harmful in locally higher concentrations. As the cap for carbon emissions is lowered, it will create additional benefits of reducing associated co-pollutants that cause health problems in communities close to their source. Nevertheless, DEQ needs to listen to and address the concerns of environmental justice advocates.
Section III: DEQ has requested comments on
Allowances should be fully bankable.[v] Once generators have sold their allocated allowances, allowance owners should be permitted to save their allowances to use or sell in the future when the price increases. We want people to have the incentive to reduce their emissions today, when doing so will have the biggest environmental impact. Carbon dioxide stays in the atmosphere a long time, and greenhouse gases create an ever-accelerating greenhouse effect (due to lost reflectivity as ice caps melt and the release of greenhouse gases from melting permafrost). If an owner of an allowance banks it, that is one unit of carbon dioxide not released today, which is more environmentally beneficial than a unit of carbon dioxide not released in the future.
Virginia must have a reliable long-term market so that generators, utilities, residents and traders on the secondary market can make long-term plans to reduce carbon. Faith in continued existence of carbon cap-and-trade will reduce price volatility, encourage banking, and encourage investment in long-term strategies in emissions reduction.[vi]
Transparency of Prices, Emissions, and Compliance Behavior will protect residents and build trust in the efficacy of the system. Buyers, sellers, and interested observers need to know prices on both the primary and secondary markets. The public needs proof that the program is working to lower emissions over time. For example, the Regional Greenhouse Gas Initiative (RGGI) posts the results of its quarterly auctions, secondary markets, and yearly emissions data.[vii] Excellent cybersecurity is also needed to prevent theft of allowances.[viii]
Section IV: DEQ has requested comments on
Allowances should be fully tradable between power plants and any public or private entity, including individuals, both in-state and out-of-state. More trading leads to price discovery and a more economically efficient use of allowances.
Section V: DEQ has requested comments on
· Monitoring and Reporting (General requirements; Initial certification and recertification procedures; Out-of-control periods; Notifications; Recordkeeping and reporting; Petitions; CO2 budget units that co-fire eligible biomass; Additional requirements to provide output data)
Units that co-fire eligible biomass should be required to purchase allowances for all CO2 emitted. The climate will react the same way to increased concentrations of CO2, irrespective of its source. Whether or not biomass is a carbon-neutral energy source, we need deep cuts in carbon emissions, and these units should not be exempt from requiring allowances. Likewise, “waste-to-energy” units that burn (largely otherwise recyclable) trash should fall under the same carbon regulations as units that burn fossil fuels.
Section VI: DEQ has requested comments on
• CO2 Emissions Offset Projects (Purpose, Definitions, General requirements, Application process, CO2 emissions offset project standards, Accreditation of independent verifiers, Award and Recordation of CO2 offset allowances)
I advocate for zero reliance on carbon offset programs. Carbon offsets are needed in addition to emissions reductions, not in place of them.
Concluding remarks
Executive Directive 11 marks the beginning of Virginia’s commitment to reducing our contribution to climate change. By itself, ED 11 is insufficient to truly address the full scope Virginia’s responsibility to lower GHG emissions. Virginia’s actions alone will not save us from a climate crisis, but we are not standing alone in our efforts to face this challenge. Virginia must take effective, determined action to break our addiction to emitting greenhouse gases if we expect others to do the same.
To this end, Virginia must recognize that regulating carbon emissions from large power plants leaves the majority of carbon emissions in the commonwealth unregulated. This penalizes large power plants for emitting the same pollutant that the transportation sector and other sectors emit for free. In the short term, the power sector is a perfectly good starting point for capping carbon emissions, but in the near future, Virginia’s goal should be to expand the cap to cover all major sources of carbon emissions. Furthermore, Virginia needs to expand the cap to cover all greenhouse gases, creating allowances for carbon dioxide equivalencies. In particular, if Virginia internalizes the social cost of methane leaks into the price of natural gas, the price will more accurately represent the true environmental impact of natural gas compared to renewable energy resources.
While steps to encompass all sources of GHGs should be taken sooner rather than later, they should not be incorporated into the first iteration of Virginia’s carbon allowance program. The first priority is to design a program that links smoothly with the parameters of RGGI (or other carbon market). Virginia needs to establish a trusting working relationship as a newcomer in RGGI, cognizant of the primacy of maintaining overall progress towards reduced carbon emissions and strong economies in all RGGI states. Once that goal is achieved, the next step is to expand the scope of the carbon market to include power sources smaller than 25 MW capacity, sectors of the economy beyond power generation, and all types of GHGs.
Finally, I encourage DEQ to make use of the commonwealth’s resources by tapping into the expertise that exists within Virginia’s universities. Highly qualified environmental economists at our state universities can provide impartial, academic analysis of options under discussion.
I thank you for your work on behalf of the citizens of the Commonwealth of Virginia, and for taking my comments into consideration.
Respectfully Submitted,
Lena Lewis
[i] United States of America (Mar 31, 2015). Intended nationally determined contribution. retrieved from http://www4.unfccc.int/submissions/indc/Submission%20Pages/submissions.aspx
[ii] Burtraw, Dallas, and Anthony Paul (July 12, 2017) Modeling Analysis of CO2 Emission Allowance Trading with RGGI and Virginia. Resources for the Future. Retrieved from https://www.dropbox.com/sh/406s2eh19lgwiax/AAB2dBW3SgNnVLTGjBlb3WUWa/Presentations?dl=0&preview=RFF-RGGI%2BVA+170711_ap.pdf
[iii] Ramseur, Jonathan (May 16, 2017) The Regional Greenhouse Gas Initiative: Lessons Learned and Issues for Congress. Congressional Research Service
[iv] Newell, Richard G., William A. Pizer, and Daniel Raimi. (June 25, 2014) Carbon markets: past, present, and future. Annual. Review of Resource. Economics. 6.1: 191-215.
[v] Tietenberg, Tom. (2003) The tradable-permits approach to protecting the commons: lessons for climate change. Oxford Review of Economic Policy 19.3: 400-419. Retrieved from
[vii] RGGI, Inc. (2017) Market monitor reports. Retrieved from http://rggi.org/market/market_monitor
[viii] Funk, McKenzie (Jan 30, 2015) The Hack that Warmed the World. Foreign Policy. Retrieved from http://foreignpolicy.com/2015/01/30/climate-change-hack-carbon-credit-black-dragon/