Agenda Item IV-1_PowerPoint

Department of Environmental Quality
RGGI Rulemaking Petition Update
North Carolina Division of Air Quality
July 14, 2022
Petition for Rulemaking
•January 11, 2021 -DAQ received a petition to develop rules
necessary to join RGGI.
•June 15, 2021 Special Meeting –AQC voted to recommend
that the EMC grant the petition.
•July 13, 2021 Special Meeting -EMC voted to grant the
petition.
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Department of Environmental Quality
RGGI Overview
Program Elements
Cap-and-trade System
•Each participating state develops rules that establish declining annual CO2emission budgets, in the form of “allowances”, from affected facilities.
•States allocate allowances to one combined Regional Market for auction.
•Affected Electric Generating Units (EGUs) bid on allowances in the Regional Market.
•Applies to fossil fuel-fired EGUs ≥ 25 MW.
•Goal of 3% reduction in CO2 budgets per year from 2020 through 2030.
•Currently, budgets are constant after 2030; however; RGGI states initiated a comprehensive program review in 2021 to consider, among other items, additional reductions to the cap post-2030.
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Department of Environmental Quality
RGGI Overview
Program Elements
Compliance
•At the end of each control period, affected EGUs must hold enough allowances to cover their CO2 emissions during the control period.
•1 CO2 allowance = 1 short ton of CO2.
•Allowances can be banked for future use.
•Allowances can also be purchased and sold on the secondary market.
•The secondary market involves the trading of allowances and financial
derivatives.
•Note: an entity does not need to be subject to RGGI in order to participate
in auctions or the secondary market.
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Department of Environmental Quality
RGGI Overview
Revenue and Investments
•Minus a small administrative fee, auction revenues are returned to
the States for their allocation of allowances.*
•Each RGGI State uses revenues differently, many are investing
energy efficiency, direct bill assistance, or other environmental
programs.*
* As set forth in the petition rule, the North Carolina program deviates
from this format.
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Department of Environmental Quality
RGGI Overview
Revenue and Investments
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Department of Environmental Quality
Allowances
Regional
Auction
Facility
Facility
Facility
Facility
Facility
RGGI, Inc.
$
$
$
$
$
Revenue
CT
DE
ME
MD
MA
NH
NJ
NY
PA
RI
VT
VA
CT
DE
ME
MD
MA
NH
NJ
NY
PA
RI
VT
VA
North Carolina RGGI Petition Rule
The NC petition rule deviates from the existing RGGI format:
•Expanded applicability;
•Consignment auction approach;
•All emissions treated equally (fossil-fuel vs. biomass);
•NC will not accept offset project applications.
•Steeper decline in the CO2 budget (~4.7% per year starting in 2022)
to meet EO80 goal of 70% reduction (below 2005 levels) by 2030.
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Department of Environmental Quality
North Carolina RGGI Petition Rule
Applicability
•Applicability is expanded to also include:
•Biomass/biofuel units
•Industrial units, regardless of grid connectivity
•Biomass emissions cannot be subtracted from compliance obligation
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Department of Environmental Quality
* Exhibit C of the petition lists the affected facilities. However, the rule applies at the unit level.
Several of the facilities listed on Exhibit C do not have any individual units that serve a generator
with a nameplate capacity ≥ 25 MW and therefore, will not be subject to RGGI.
North Carolina RGGI Petition Rule
Affected Sources
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Department of Environmental Quality
Emissions in million short tons CO2 2014 2016 2018 2019 2020
EGUs
IOUs
DEP/DEC 57.08 51.99 48.32 44.91 36.12
Dominion (1)0.043 0.040 0.023 0.003 0.003
Total IOUs 57.1 52.0 48.3 44.9 36.1
Non-IOUs
IPPs (5)2.20 3.07 3.66 4.62 3.96
Muni (1)0.014 0.008 0.051 0.011 0.000
Coops (2)0.11 0.19 0.35 0.12 0.09
Total Non-IOUs 2.32 3.26 4.06 4.75 4.06
Total EGUs 59.45 55.29 52.40 49.67 40.17
non-EGUs
Industrial Pulp/Paper (4)5.70 5.55 5.61 5.65 4.23
Institutional UNC (1)0.09 0.17 0.26 0.23 0.24
Total non-EGUs 5.79 5.71 5.87 5.88 4.48
Total RGGI Sources under Petition Rule 65.24 61.00 58.27 55.54 44.65
North Carolina RGGI Petition Rule
Consignment Auction Approach
•Instead of allocating the statewide CO2 budget to the Regional Market
directly, North Carolina’s budget will be allocated to the affected sources
as “conditional” CO2 allowances.
•Conditional allowances cannot be used directly for compliance; they
must be consigned to the Regional Market first.
•Once a “conditional” allowance passes through the Regional Market, it is
no longer “conditional” (i.e., it can be used for compliance).
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Department of Environmental Quality
North Carolina RGGI Petition Rule
Consignment Auction Approach
•Affected sources must still purchase allowances to use for compliance,
either through the Regional Market auctions or on the secondary market.
•Auction revenues are returned to the affected sources that consign
allowances to the auction, rather than the State.
•North Carolina would be the first RGGI state to implement this
consignment approach.
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Department of Environmental Quality
RGGI Petition Rule
Consignment Auction Approach
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Department of Environmental Quality
Allowances
Regional
Auction
Facility
Facility
Facility
Facility
Facility
RGGI, Inc.
$
$
$
$
$
Revenue
NC
NC Facility
NC Facility
NC Facility
Conditional Allowances
NC Facility
NC Facility
NC Facility
DE
ME
MD
MA
NH
CT
NY
PA
RI
VT
VA
NJ
DE
ME
MD
MA
NH
CT
NY
PA
RI
VT
VA
NJ
RGGI Overview
Program ElementsRecent Auction Results
RGGI Auction Results
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Department of Environmental Quality
Auction Date Allowances sold ECR or CCR
triggered?Clearing Price
6/1/2022 All No $13.90
3/9/2022 All No $13.50
12/1/2021 All Yes –CCR $13.00*
9/8/2021 All No $9.30
6/2/2021 All No $7.97
3/3/2021 All No $7.60
12/2/2020 All No $7.41
9/2/2020 All No $6.82
*CCR Trigger Price for 2021
North Carolina RGGI Petition Rule
Next steps
•The rule-making process has commenced
•Development of a fiscal note/analysis
•Environmental Justice report
•Request to proceed to public hearing
•Public comment process (including a public hearing)
•Final action by EMC
•Final approval by RRC
•Rule is final if <10 letters of objection are received (deadline is 1 day
after RRC approval)
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Department of Environmental Quality
North Carolina HB 951/Carbon Plan
Overview
•4 portfolios: only one achieves 70% reduction by 2030
•The Carbon Plan evaluates the portfolios against 4 objectives: 1) CO2 Reduction, 2)
Affordability, 3) Reliability, and 4) Executability.
•Common elements across all 4 portfolios
•Near-term resource investments
•Emission trends are similar until ~2028, when Portfolio 1 diverges with faster
reductions.
•Other 3 objectives vary across the portfolios.
•Intervenor responsive filings due July 15th (may include alternative modeling)
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Department of Environmental Quality
North Carolina Carbon Plan
Overview
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Department of Environmental Quality
Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4
Reference: Excerpts from Figures 3-6, 3-7, 3-8, and 3-9, Chapter 3, Duke Carbon Plan, May 16, 2022, Docket No. E-100, Sub 179.
Reference: Figure 3-17,Chapter 3, Duke Carbon Plan, May 16, 2022, Docket No. E-100, Sub 179.
70% Portfolio Snapshot at the Time of Achievement of Interim 70% Target
(date of achievement varies across portfolios)
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Reference: Duke Energy Carbon Plan, Executive Summary, Figure 6, May 16, 2022, Docket No. E-100, Sub 179.
Supply-Side Resources Requiring Actions in Near-Term (2022-2024)
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Department of Environmental Quality Reference: Duke Energy Carbon Plan, Executive Summary, Table 3, May 16, 2022, Docket No. E-100, Sub 179.
Coal Capacity Retirements
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Plant Name Winter Capacity
(MW)Fuel(s)2020 IRP Case A/B
w/updates
Carbon Plan Portfolio
1 2 3 4
DEC
Allen 1 167 Coal 2024 2024
Allen 5 259 Coal 2024 2024
Belews Creek 1 1110 Coal/NG 2039 2036
Belews Creek 2 1110 Coal/NG 2039 2036
Cliffside 5 546 Coal/NG 2026 2026
Cliffside 6 849 Coal/NG 2049 2036*
Marshall 1 380 Coal/NG 2035 2029
Marshall 2 380 Coal/NG 2035 2029
Marshall 3 658 Coal/NG 2035 2033
Marshall 4 660 Coal/NG 2035 2033
DEP
Mayo 1 713 Coal 2029 2029
Roxboro 1 380 Coal 2029 2029
Roxboro 2 673 Coal 2029 2029
Roxboro 3 698 Coal 2028 2028 2032 2034 2034
Roxboro 4 711 Coal 2028 2028 2032 2034 2034
Total Coal 9294 Retired Coal Capacity by 2030 4147 4907 3498 3498 3498
45%53%38%38%38%*Not retiring but coal usage ends by this date.
Date advanced from IRP
Date delayed from IRP
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0
5
10
15
20
25
30
35
40
45
0
5
10
15
20
25
30
35
40
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2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035million short tons CO2Carbon Plan vs. Petition
CP Portfolio 1 Emissions CP Portfolio 2 Emissions CP Portfolio 3 Emissions CP Portfolio 4 Emissions
2021 Duke Emissions Carbon Plan 2030 Target (70%)Petition RGGI Budget
2005 Duke Emissions = 75.87 million short tons
70% Reduction
2030 Interim Target
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RGGI Petition Rule Allocations for DEC/DEP and Non-IOUs(Draft –for illustration purposes)
0
5
10
15
20
25
30
35
40
45
2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031Annual CO2Allocations (Million Short Tons)Petition RGGI Allocations for DEC/DEP and Non-IOUs
Petition RGGI Budget
Estimated DEC/DEP Petition RGGI Budget
Estimated Non-IOU Petition Budget
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0
5
10
15
20
25
30
35
40
45
2022 2023 2024 2025 2026 2027 2028 2029 2030Annual CO2emissions (million short tons)Petition RGGI Allocations vs. Duke Energy Carbon Plan
Petition RGGI Budget Estimated DEC/DEP Petition RGGI Budget
Duke Carbon Plan Portfolio 1 Duke Carbon Plan Portfolio 2
Duke Carbon Plan Portfolio 3 Duke Carbon Plan Portfolio 4
RGGI Petition Rule Allocations vs. Carbon Plan Portfolios(Draft –for illustration purposes)
Budget Adjustments
Petition Rule:
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Year Base Budget Basis
2022 38,654,000 Projected emissions
2030 24,230,000 CEP A-1 goal of 70% reduction from 2005 levels
•The budget declines linearly between starting and final budget.
•The rule allows for recalculation of the starting and ending budgets if NC does not join RGGI by 2022.
North Carolina RGGI Petition Rule
Methodology Assumptions
•Investor-Owned Utilities (IOUs) –DEP/DEC
•Estimate impacts incremental to State Law (HB 951) –Carbon Plan
•Carbon Plan will specify schedule for deployment of generation resources and
retirements to meet 2030 and 2050 CO2 reduction targets considering affordability,
reliability, and executability of resources
•RGGI petition rule cannot impose deployment of a generation mix or retirements
in conflict with the Carbon Plan
•Therefore, incremental impacts will reflect costs/benefits associated with
participation in the RGGI market (i.e., allowances reflecting difference between the
IOU portion of the RGGI cap and Carbon Plan for each year)
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Department of Environmental Quality
North Carolina RGGI Petition Rule
Methodology Assumptions
•Non-IOU Facilities
•Not covered by State Law (HB 951)
•Apply RGGI declining cap schedule to determine non-IOU portion of RGGI cap
•Total non-IOU emissions are a small portion of total RGGI budget
•Estimate costs/benefits associated with participation in the RGGI market
•Do not have information to determine if facilities would implement measures to
control CO2 emissions
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Department of Environmental Quality
North Carolina RGGI Petition Rule
Methodology Assumptions
•Industrial / Institutional Facilities (non-EGUs)
•Not covered by State Law (HB 951)
•Emissions not included in RGGI Petition Rule budget
•Based on current data, and the methodology in the RGGI Petition Rules, these
facilities are unlikely to receive allowance allocations from the state.
•Estimate costs associated with purchase of allowances from RGGI market to
cover CO2 emissions
•Do not have information to determine of facilities would implement measures to
control CO2 emissions; therefore, RGGI declining cap schedule would not be
applied to determine annual allowance purchases.
•Most participating states exempt these facilities.
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Department of Environmental Quality
North Carolina RGGI Petition Rule
Types of Costs to Affected Facilities
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Department of Environmental Quality
Entity Type Cost Basis
IOUs
Variable Incremental allowances
beyond allocations
= [(Carbon Plan emissions) –(IOU portion of NC
RGGI budget)] * auction clearing price
Variable RGGI auction admin fee = percentage of auction revenues
Fixed Consultant/AAR = 1 staff position for each entity
Fixed Permit application fee = one-time application fee for each IOU facility
Non-IOUs
Variable Incremental allowances
beyond allocations
= (non-IOU projected emissions) –(non-IOU portion
of NC RGGI budget) * auction clearing price
Variable RGGI auction admin fee = percentage of auction revenues
Fixed Consultant/AAR = 1 staff position for each entity
Fixed Permit application fee = one-time application fee for each non-IOU facility
AAR = Authorized Account Representative, required of each entity to manage COATS account
North Carolina RGGI Petition Rule
Types of Costs to Affected Facilities
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Entity Type Cost Basis
Non-EGUs
Variable Allowances for all emissions = (projected non-EGU emissions) * auction
clearing price
Variable RGGI auction admin fee = percentage of auction revenues
Fixed Consultant/AAR = 1 staff position for each entity
Fixed CEMS
(Pulp/Paper facilities)= capital cost + labor + maintenance
Fixed Permit application fee = one-time application fee for each facility
AAR = Authorized Account Representative, required of each entity to manage COATS account
North Carolina RGGI Petition Rule
Types of Costs to DEQ
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Entity Type Cost/Benefit Basis
DEQ
Fixed Cost Staff time for permit reviews One-time application review for each source
Fixed Cost Staff for RGGI
implementation
Staff salary to oversee RGGI program, including:
-Conditional allowance allocations
-Compliance with program
-RGGI program reviews/meetings
Fixed Benefit Permit application fees One-time application fee for each permit
North Carolina RGGI Petition Rule
Program Revenues
Investor-Owned Utilities (IOUs) –DEP/DEC
•Addressed only with language in 02D .2821(g):
“Each electric public utility with CO2 budget units shall file with the North Carolina
Utilities Commission a plan for how it will spend auction revenues for public
benefit, strategic energy, or other purposes approved by the Commission.”
Non-IOU Facilities
•Not addressed in RGGI Petition Rules
Industrial / Institutional Facilities (non-EGUs)
•Not addressed in RGGI Petition Rules
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Department of Environmental Quality
Department of Environmental Quality
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Tentative Rulemaking Timeline(Subject to Change)
Nov 2022 Request to Proceed to Comment and Hearing to Environmental Management Commission (EMC)
•Dec 2022-Feb 2023 Public Comment Period and Hearing
•May 2023 Adoption by EMC
•June 2023 Rules Review Commission Approval
•July 2023 Tentatively Effective
•1/1/2024 RGGI participation begins
Contact information
Mike Abraczinskas, EIT, CPM
Director
NC Division of Air Quality
[e-mail]
919-707-8447
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Randy Strait
Planning Section Chief
NC Division of Air Quality
[e-mail]
919-707-8721
Katherine Quinlan
Rules Development Branch
NC Division of Air Quality
[e-mail]
919-707-8702
Brad Nelson
Rules Development Branch
NC Division of Air Quality
[e-mail]
919-707-8705