Current Management and Revenue of Heating OilFuture Management of Heating OilsProtecting our Air as a Common AssetRENTING THE AIR:CURBING EMISSIONS FROM TRANSPORTATION AND HEATING INVERMONTJENNIFER KENYAN AND BETH NOLANPA 395COMMON ASSETS IN PUBLIC BUDGETINGConsider, for example, our atmosphere. It’s not just today’s pollution that hurts, it’s theaccumulation of fumes we’ve been pouring into the air for centuries. This has already causedice caps to melt, hurricanes to gain ferocity, and the Gulf Stream to weaken. Almost universally,the world’s scientists warn that far worse lies ahead. The question our generation faces is: willwe change our economic system voluntarily, or let the atmosphere change it for us?--Peter Barnes, Capitalism 3.0Greenhouse gas emissions from heating of residential and commercial buildings and emissions from transportation constitute 27% and 44% of total Vermont emissions, respectively. Global climate change and its impacts can be traced back to these emissions and their sources. As Vermont and neighboring states take proactive steps and collaborate to curb emissions from the industrial sector through the Regional Greenhouse Gas Initiative, the need to curb emissions from the residential, commercial, and transportation sector remains unfulfilled. This paper will examine potential ways to protect our common asset, the air, through economic incentives.The Regional Greenhouse Gas Initiative: An OverviewThe Regional Greenhouse Gas Initiative (RGGI, pronounced ReGGIe), which began in April 2003, is an agreement among the Governors of ten Northeastern and Mid-Atlantic States (Connecticut, Delaware, Maine, Maryland, Massachusetts, New Jersey, New Hampshire, Rhode Island and Vermont) to reduce the emissions of greenhouse gases from power plants. The RGGI model was developed through the collaborative efforts of energy and environmental agencies, research organizations, stakeholder participation, and state officials. The program components included in the Memorandum of Understanding (MOU) signed by the ten states set a start date for the cap-and trade-program of January 1, 2009. The program covers fossil fuel fired electric generating units of 25 megawatts and larger and consists of a two-phase cap: to stabilize current emissions through 2014, and reduce emissions by 10% thereafter by 2018. It should be noted that the stabilizing cap point starts at 4% above the average 2000-2004 annual emissions. The program also includes a comprehensive review in 2012.The RGGI action plan also established guiding principles for the program design, including: emphasizing uniformity across the participating states; building on existing successfulcap-and-trade programs; ensuring that the program is expandable and flexible, allowing other states or jurisdictions to join in the initiative; starting the program simply by focusing on a core cap-and-trade program for power plants; and focusing on reliable offset protocols (i.e., credits forreductions outside of the power sector) in a subsequent design phase. The MOU includes the allowance of price triggers and offsets for project-based emissions reductions outside the capped sector to provide compliance flexibility of the program. Offsets allowances (or “credits”) are certified emissions reductions or carbon sequestration that take place outside the electric generating sector in eligible project areas that meet the program requirements. A GHG emitting source may not rely entirely on offsets to meet its obligation. Initially, a source will be permittedto cover up to 3.3% of its emissions with offsets—an amount that is approximately 50% of the projected average emission reduction obligation under the program. This means that a significant portion of the reductions under the program must occur at the power plants. The program is designed to allow sources to use more offsets allowances if the cost of carbon allowances exceeds prescribed thresholds. If the cost of allowances reaches $7 per ton ona sustained basis, for example, sources will be permitted to cover up to 5.0% of their emissions with offsets allowances. If the cost per ton exceeds $10, then sources may cover up to 20% of their emissions with offsets allowances.Initially, offsets allowances may be issued to verified reduction projects anywhere in the United States in the following areas: natural gas, heating oil and propane energy efficiency; landfill gas capture and combustion; methane capture from animal operations; forestation of non-forested land; reductions of sulfur hexafluoride (SF6) emissions from electricity transmissionand distribution equipment; and reductions in fugitive emissions from natural gas transmission and distribution systems. Offsets from non-participating states may be awarded a one ton credit for each two tons of verified reductions. The states have agreed that sources should cover their emissions with allowances every three years. The three-year compliance period will allow weather-related “spikes” in emissions to be smoothed out over a longer averaging time. Because the impacts of carbon dioxide emissions are primarily long-term in nature, this temporal flexibility is possible. In addition, the states have provided for a “safety valve” that would further extend the compliance period by one year at a time if the allowance price reaches $10 for a sustained period. This safety valve is designed to help prevent allowance price spikes while at the same time ensuring emissions reductions. The emissions allowances under RGGI will be distributed to sources, or otherwise into the open emissions market, by each participating state, as the state deems appropriate. The stateshave agreed that at least 25% of the emissions allowances will be allocated to a “consumer benefit or strategic energy purpose.” This means that revenue from the sale of 25% of the allowances will be used to support energy efficiency, renewable energy, innovative energy technologies or consumer rebates. This sale of allowances may be achieved through an auction, although states will have discretion in the specific method used for distributing this portion of allowances.iIn March 2008, RGGI released the “Design Elements for Regional Allowance Auctions.” The initial auction is currently planned for September 10, 2008 with a second auction scheduled for December 17, 2008. Allowances will be made available for sale on a quarterly basis in
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