Question 1 Consider the following cap-and-trade programs: a. RECLAIM b. Bush cap
ID: 371860 • Letter: Q
Question
Question 1 Consider the following cap-and-trade programs: a. RECLAIM b. Bush cap-and-trade proposal c. Regional Greenhouse Gas Initiative (RGGI) d. Clunker Program e. National SO2 Trading f. European Trading System (ETS) g. Bubbles h. Lead trading Of the program(s) listed above, which were designed to address Acid Rain? Urban air pollution? Global warming? Mercury pollution? Which program(s) are known to have suffered (or may suffer) from problems with hot spots? Monitoring and enforcement? Thin markets? Price volatility? Explain. 1. 2.Explanation / Answer
CAP and Trade Proposal:
Acid Rain Program: The Acid Rain Program (ARP), established under Title IV of the 1990 Clean Air Act (CAA) Amendments requires major emission reductions of sulfur dioxide (SO2) and nitrogen oxides (NOx), the primary precursors of acid rain, from the power sector. The SO2 program sets a permanent cap on the total amount of SO2 that may be emitted by electric generating units (EGUs) in the contiguous United States. The program was phased in, with the final 2010 SO2 cap set at 8.95 million tons, a level of about one-half of the emissions from the power sector in 1980. NOx reductions under the ARP are achieved through a program that applies to a subset of coal-fired EGUs and is closer to a traditional, rate-based regulatory system. Since the program began in 1995, the ARP has achieved significant emission reductions. See our annual progress reports for more information on the progress of the ARP.
The ARP was the first national cap and trade program in the country and it introduced a system of allowance trading that uses market-based incentives to reduce pollution. Reducing emissions using a market-based system provides regulated sources with the flexibility to select the most cost-effective approach to reduce emissions, and has proven to be a highly effective way to achieve emission reductions, meet environmental goals, and improve human health.
RECLAIM: EPA's Evaluation of the RECLAIM Program in the South Coast Air Quality Management District
The Regional Clean Air Incentives Market (RECLAIM) program, adopted by the South Coast Air Quality Management District (SCAQMD) in October 1993, set an emissions cap and declining balance for many of the largest facilities emitting nitrogen oxides (NOx) and sulfur oxides (SOx) in the South Coast Air Basin. RECLAIM includes over 350 participants in its NOx market and about 40 participants in its SOx market. RECLAIM has the longest history and practical experience of any locally designed and implemented air emissions cap and trade (CAT) program. RECLAIM allows participating facilities to trade air pollution while meeting clean air goals.
The program was designed to provide industry with flexibility to decide how to reduce emissions and advance pollution control technologies. NOx and/or SOx allocations were issued to RECLAIM facilities based on their historical activity levels and applicable emission control levels specified in the subsumed rules or in the local Air Quality Management Plan. Facilities within the RECLAIM program have the option of complying with their allocation allowance by either reducing emissions or purchasing RECLAIM Trading Credits from other facilities. Facilities ranging from power producers to glass melters and facilities using industrial boilers participate in RECLAIM.
Why did EPA evaluate RECLAIM?
As a result of a variety of factors during 2000 and 2001, RECLAIM credit prices increased dramatically, while at the same time some facilities in the market had difficulty meeting their emission levels in RECLAIM. This resulted in reported emissions exceeding emissions allowed under RECLAIM. EPA decided to evaluate the causes of these events and to examine the effectiveness of the RECLAIM program. In our evaluation, we tried to answer a series of performance questions such as whether expected emission reductions had been achieved, what types of emission control strategies had been applied by market participants, and whether the program was cost-effective overall. Based on our evaluation, we believe that the SCAQMD has been effective managing RECLAIM and modifying the program to adapt quickly to changing conditions. We also believe that others will benefit from their experience.
What process did EPA use in evaluating RECLAIM?
EPA and a research team reviewed existing materials on the background of RECLAIM, its implementation, and reviews and evaluations of its performance. The primary source of this evaluation comes from a series of interviews conducted with over 20 stakeholders from regulated facilities, environmental organizations, regulatory agencies, and brokerage firms. It is important to note that the number of stakeholders interviewed as well as the composition and the variety of the views represented by our interviews is not necessarily representative of the variety of views that are held about the RECLAIM program.
There was little emphasis in the available literature that describes how the underlying theories of market based incentives programs can be practically tested. Accordingly, this evaluation focused in large part on the decision-making behavior by operators of the regulated sources, since it is these decisions that ultimately determine the outcome of the program. EPA views this analysis as contributing to the continued efforts to examine and improve RECLAIM and other innovative regulatory efforts. We have provided the SCAQMD the opportunity to comment on this report.
What are some of the lessons learned from RECLAIM's experience?
RGGI: Program Overview
To reduce emissions of greenhouse gases, the RGGI States use a market-based cap-and-trade approach that includes:
RGGI Benefits: The RGGI states issue CO2 allowances which are distributed almost entirely through regional auctions, resulting in proceeds for reinvestment in strategic energy and consumer programs. Programs funded with RGGI investments have spanned a wide range of consumers, providing benefits and improvements to private homes, local businesses, multi-family housing, industrial facilities, community buildings, retail customers, and more.
Released in October 2017, The Investment of RGGI Proceeds in 2015 report tracks the investment of the RGGI proceeds and the benefits of these investments throughout the region. Arising from the lifetime impact of RGGI investments made in 2015, the report estimates:
These benefits are limited to the direct benefits arising from specific 2015 projects, and do not include larger macroeconomic effects that may occur as a result of the RGGI cap and market signal.
Proceeds were invested in programs including energy efficiency, clean and renewable energy, greenhouse gas abatement, and direct bill assistance. Energy efficiency and clean and renewable energy continued to receive the largest share of investments.
The Regional Greenhouse Gas Initiative (RGGI) was the first mandatory cap-and-trade program in the United States to limit carbon dioxide (CO2) from the power sector. The participating states are Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New York, Rhode Island, and Vermont.
RGGI was established in 2005 and administered its first auction of CO2 emissions allowances in 2008. By 2020, the cap-and-trade program is expected to help the states reduce annual power-sector CO2 emissions 45 below 2005 levels. The states have set a goal of reducing emssions an additional 30 percent by 2030.
RGGI requires fossil fuel power plants with capacity greater than 25 megawatts to obtain an allowance for each ton of CO2 emitted annually. Power plants within the region may comply by purchasing allowances from quarterly auctions, other generators within the region, or offset projects.
RGGI History
Program Development and Model Rule
In 2005, the governors of Connecticut, Delaware, Maine, New Hampshire, New Jersey, New York, and Vermont signed a Memorandum of Understanding (MOU) to reduce CO2 emissions within the northeastern and mid-Atlantic region. In 2007, RGGI was expanded to include Maryland, Massachusetts, and Rhode Island. The ten signatory states agreed to be jointly responsible for carrying out the provisions featured in the MOU.
First, the states agreed to adopt individual shares of the overall RGGI CO2 cap and to implement state-level CO2 emissions budgets. Second, the states developed a Model Rule to serve as a common framework for individual state-level regulations. The Model Rule was adopted in 2008 and updated in 2013 to account for changes in the program design following a 2012 program review. The 2016 program review is not yet finalized, but draft Model Rule amendments are being considered.
Between 2008 and 2013, RGGI operated on the basis of the original Model Rule, which served as a regulatory blueprint for each member state, and the main details remain unchanged. Under the Model Rule framework, each state enacted individual regulations that covered entities were required to comply with in order to participate in the regional trading program. An initial regional CO2 cap of 188 million tons applied from 2008 to 2011; the cap was lowered to 165 million tons for 2012 and 2013, after New Jersey left the program. The Model Rule identified methods and standards for quarterly CO2 allowance auctions, and parameters for tracking acquisition and transfers of CO2 allowances through the RGGI CO2 Allowance Tracking System (RGGI COATS). The original Model Rule also established conditions for verifying the eligibility of offset credits.
First Control Period (2009–2011)
In the first control period, between 2009 and 2011, RGGI auctioned 395 million CO2 allowances, or 70 percent of the total 564 million available. CO2 emissions in the region fell below the cap, leaving a surplus of unsold CO2 allowances. Over the program’s first fourteen quarterly auctions, the clearing price for CO2 allowances ranged between $1.86 and $3.35, yielding $922 million in revenue. A report by the New York State Energy Research and Development Agency attributes the region’s decrease in CO2 emissions to fuel-switching from petroleum and coal to less carbon-intensive natural gas, lower electricity demand, and increased nuclear and renewable capacity.
At the end of the first control period, New Jersey Gov. Chris Christie withdrew the state from RGGI.
Second Control Period (2012–2014)
The nine remaining RGGI states continued the program, lowering the cap to account for New Jersey’s departure. Demand for allowances throughout 2012 remained low, with prices never exceeding $1.93. Demand increased dramatically, however, upon release of the updated Model Rule, which lowered the 2014 CO2 budget to 91 million tons. At the next auction, clearing prices rose as high as $3.21 and 100 percent of allowances were sold. Between 2012 and 2013, nearly 80 percent of allowances offered at auction were sold.
Changes after 2012 Program Review
Starting Jan. 1, 2014, member states began implementing the updated Model Rule adopted in late 2013. The 2014 emissions cap of 91 million tons of CO2 was set 45 percent lower than 2013, to be closer to projected emissions in 2014, and was set to decline 2.5 percent annually until 2020.
In addition to reducing the cap, the 2012 Program Review introduced several policy provisions. One of these is a Cost Containment Reserve (CCR), intended to keep the price of allowances from rising above a program-wide trigger price ($4 in 2014, $6 in 2015, $8 in 2016, $10 in 2017, and increasing 2.5 percent annually thereafter). The CCR consists of a limited supply of additional CO2 emission allowances separate from the annual RGGI Program CO2 Budget, which are to be made available for purchase when demand for allowances causes the clearing price to exceed the trigger price.
Third Control Period (2015–2017)
Allowance prices steadily increased through 2015 to a high of $7.50 per ton as nuclear plant closures were announced and the Obama administration released its Clean Power Plan. The 2015 Cost Containment Reserve fully sold out, demonstrating its effectiveness at slowing price increases. However, prices fell steadily through 2016 and early 2017 to a low of $2.53 per ton as it became clear that the Clean Power Plan would not be implemented. After the 2016 Program Review was completed and RGGI states announced a cap reduction goal of 30 percent by 2020, prices increased again. All allowances offered in the first auction of the third compliance period were sold.
Changes implemented after the 2016 Program Review
On Aug. 23, 2017, RGGI states announced proposed changes to the program as part of the 2016 Program Review. They announced an overall cap reduction of 30 percent between 2020 and 2030. The CCR mechanism remains in place, but with higher trigger prices ($13 in 2021, increasing 7 percent annually). A new mechanism called the Emissions Containment Reserve (ECR) will be implemented beginning in 2021. Under the ECR, states can choose to withhold up to 10 percent of their annual budget, if prices fall below certain triggers ($6 in 2021, increasing 7 percent annually). In this way, states can choose to force more reductions if prices are lower than currently projected. Seven states (Connecticut, Delaware, Maryland, Massachusetts, New York, Rhode Island, and Vermont) intend to implement the ECR.
These changes will be finalized after each state undergoes its own regulatory process to approve them.
CLUNKERS: The Car Allowance Rebate System (CARS), colloquially known as "cash for clunkers", was a $3 billion U.S. federal scrappage program intended to provide economic incentives to U.S. residents to purchase a new, more fuel-efficient vehicle when trading in a less fuel-efficient vehicle. The program was promoted as providing stimulus to the economy by boosting auto sales, while putting safer, cleaner, and more fuel-efficient vehicles on the roadways.
The program officially started on July 1, 2009, processing of claims began July 24, and the program ended on August 24, as the appropriated funds were exhausted. The deadline for dealers to submit applications was August 25. According to estimates of the Department of Transportation, the initial $1 billion appropriated for the system was exhausted by July 30, 2009, well before the anticipated end date of November 1, 2009, due to very high demand.
Eligibility: Vehicle must be less than 25 years old on the trade-in date.
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.