In early 2007, Massachusetts and Rhode Island announced their intent to join the Regional Greenhouse Gas Initiative (RGGI), a cooperative effort to reduce carbon dioxide (CO2) emissions, the major contributor to global climate change. The impending implementation of RGGI has raised questions regarding the treatment of wind power (and other zero-emission renewable energy generation sources) within the RGGI and how the RGGI may impact representations of wind power and its benefits. Some have argued that emissions will be reduced to RGGI targets with or without the help of wind. Analysis reveals, however, that wind power is essential to meeting and surpassing the emission reductions required to meet policy goals.
Figure 1: The Impact of Wind Power on the RGGI Carbon Dioxide Emission Cap. Click on the image to view a larger version.
RGGI now includes 10 Northeast states: all six New England states and New York, New Jersey, Delaware, and Maryland. These states have set a cap on CO2 emissions from the electricity sector, along with a tradable allowance mechanism encouraging efficient (least-cost) compliance — a "cap-and-trade" regime. Through a multi-year and multi-stakeholder process, RGGI member states have negotiated and signed a Memorandum of Understanding (MOU) committing them to state-by-state emission budgets (share of the regional cap) and have developed a Model Rule for implementing the cap-and-trade regime on a state-by-state basis. As the MOU commits participating states to cap CO2 emissions starting in 2009, the New England states are now proceeding to formally approve RGGI participation (if required) and/or undertaking state rulemakings to implement the commitments based on the RGGI Model Rule. Any generator subject to the cap must possess an allowance for every ton of CO2 it emits. Participating states plan to auction from 25% to 100% of their allowances to the CO2-emitting generators. Such an auction will result in revenue to be used for consumer benefit or strategic energy purposes, including energy efficiency investments, renewable energy, innovative energy technologies, or consumer rebates. Allowances not auctioned will be allocated to existing generators. More information can be found on the RGGI Web site.
Wind developers need to understand the treatment of wind power under an RGGI cap-and-trade regime, as well as how they may benefit. Marketers or utilities selling wind power, and customers buying wind power, need to understand how RGGI may impact their sales, purchases, or claims regarding the benefits of wind. Policymakers and the public may find the interaction of a cap-and-trade emission reduction policy in the presence of a renewable portfolio standard (RPS, or a minimum percentage of electricity sales required to be sourced from renewable energy generation) in place throughout the region to be less than obvious. So what does RGGI mean for wind power?
If unfamiliar with the details of RGGI, one might anticipate that wind power and other zero-emitting generation sources would be critical players and big winners under a CO2 cap and trade. What better way to reduce emissions than to introduce generation sources that create no emissions? On the other hand, emissions are capped whether or not more wind is added to the regional supply, right? Closer inspection, however, reveals a more complex picture.
Today, prior to implementation of a CO2 cap, the addition of wind generation in the region almost always displaces fossil-fuel generation and the associated CO2 emissions. As a result, CO2 emissions are lower than they would be in the absence of wind generation. Although the introduction of RGGI adds complexity to wind's role in CO2 reduction, there is no question that wind plays an important role in meeting targets.
Under the RGGI model rule, wind power generators don't require allowances to operate, and don't receive any allowances or direct financial benefit. To meet their obligations under the cap, fossil-fuel generators will employ various tactics: switch to less carbon-intensive fuels, increase the efficiency of their plants to yield more energy per ton of CO2 emitted, capture and sequester carbon from their emissions, reduce operations, or purchase allowances from someone else who can take one of these actions more cost-effectively. In some cases, generators may purchase offsets — reductions of CO2 produced through means outside of the electric system, such as tree-planting.
When wind generation is added to the grid, CO2-emitting generation is displaced and the carbon-intensity of the region's generating portfolio declines. Depending on how much load grows, generation and emissions may be reduced at some fossil-fueled plants, and therefore some fossil-fuel generators may not need to undertake more costly measures to meet the cap. As a result, the added wind generator has made it both easier and less costly to meet the cap; however, it is not possible to determine precisely the effects of wind on CO2 emissions under the cap.
To understand the role of wind power under RGGI, it is also important to understand the interaction of RGGI and RPS policies. This interaction depends on whether an RPS policy was adopted before or after the analyses used to establish the cap were performed. As shown in Figure 1, incremental renewable energy sources (primarily wind power) forecasted to come online to meet RPS policies adopted prior to 2005 were taken into account in setting the CO2 cap and each state's emission budget. Modeling performed for the RGGI stakeholder process projected that wind power would meet the lion's share of the RPS demand — more than 9000 MW of wind generation was projected to be built in the Northeast in response to these RPS policies by 2024. This amount of yet-to-be-built wind was pre-counted in calculating the RGGI "Reference Case," the starting point before implementation of an RGGI cap. The author has calculated that RPS- compliance, dominated by wind power, is projected to be responsible for most of the emission reductions expected in the early years of the RGGI cap-and-trade implementation, as well as roughly 45% of the total reductions necessary to reduce 2018 CO2 emissions to 10% below 2006 levels (the target reflected in setting the RGGI cap). It is clear that substantial additions of wind power driven by compliance with these RPS policies are essential to RGGI success.
For newer RPS requirements — such as the New Hampshire RPS, the expansion of the Connecticut Class 1 requirement, or the new Maine requirement (described in the September 2007 issue of the New England Wind Forum Newsletter) — the wind used to meet these standards would not necessarily or immediately reduce emissions below the RGGI cap. Unless the RGGI caps are subsequently lowered, while wind used to meet these newer RPS targets may cause emissions to fall below the cap by some unpredictable amount, the primary impact will be to help make it more likely that the RGGI caps will be met, and met at a lower cost. In doing so, renewable energy generation brought online to comply with these newer RPS policies increases the probability that the cap can be reduced further in the future, as required to reduce CO2 emissions to levels needed (see lowest line in Figure 1)1.
So what does RGGI mean for the growing number of customers choosing to purchase renewable energy or renewable energy certificates? (See the Environmental Protection Agency Green Power Partnership) The way renewable energy is treated under RGGI could complicate the voluntary "green power" market. A primary motivator of such voluntary renewable energy purchases is to reduce the buyer's greenhouse gas footprint and overall greenhouse gas emissions. For the reasons described earlier, a CO2 cap and trade could undermine or reverse the ability to reduce overall greenhouse gas emissions, if allowances are not attributed to voluntary market sales of RECs. For this reason, a clause was included in the RGGI Model Rule (Section xx-5.3 (d) optional voluntary renewable energy market set-aside) which, if adopted by the states, would allocate allowances in proportion to green power purchases and automatically retire them. Adoption of this clause would allow wind power sold and purchased in the voluntary market to directly reduce CO2 emissions below the cap. Connecticut and Rhode Island have passed legislation allowing this voluntary "green power" provision to be included in RGGI implementing regulations; Maine's implementing legislation did not include the provision, although it is sure to be raised in the rulemaking process; other states have yet to act to include this provision.
Wind generators will not receive direct financial benefit under RGGI by receiving allowances, which could then have been resold to create a supplemental revenue stream, although the developers of wind generation will benefit indirectly from the adoption of RGGI. In New England's electricity market, fossil-fuel generators (mostly natural gas and oil) are the marginal, or price-setting, resources. As a result of RGGI, the cost of electricity generated by these resources will increase, as they will need to procure CO2 allowances in order to operate. As market prices for electricity increase somewhat as a result, the value of emission-free wind electricity will increase under RGGI.
1 For example, a long-term goal of 75%-80% below 1990 CO2 emissions levels was articulated by the Conference of New England Governors and Eastern Canadian Premiers in their 2001 Climate Change Action Plan.
By Robert C. Grace, Sustainable Energy Advantage, LLC
The author wishes to thank Lori Bird, National Renewable Energy Laboratory; Edward Holt, Ed Holt & Associates, Inc.; Tom Rawls, THR Associates LLC; Rob Harmon, Bonneville Environmental Foundation; John Zimmerman, Vermont Environmental Research Associates, Inc.; Joseph T. Fontaine, State of New Hampshire Department of Environmental Services; John Rogers, Union of Concerned Scientists; and Roger Smith, Clean Water Action for their review and comments on this article.
Some of the following documents are available as Adobe Acrobat PDFs.
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- Regional Greenhouse Gas Initiative Model Rule
- Bird, L., Holt, E., and Carroll G. (April 2007). "Implications of Carbon Regulation for Green Power Markets (PDF 982 KB)." NREL/TP-640-41076. Golden, CO: National Renewable Energy Laboratory.
- Harmon, R. and Hirschhorn, M. (July 2006). "Clearing the Air: The Impact of Carbon Cap and Trade Regulations on Renewable Energy (PDF 1.2 MB)." Presented at the SOLAR 2006 Conference, Denver, Colorado. Bonneville Environmental Foundation, 2006; pp. 1-7.
- Holt, E. and Wiser, R. (April 2007). "The Treatment of Renewable Energy Certificates, Emissions Allowances, and Green Power Programs in State Renewables Portfolio Standards (PDF 292 KB)." LBNL-62574. Report prepared for Lawrence Berkeley National Laboratory, Berkeley, CA.
- Grace, R. and Rawls, T. (June 2007). "Untangling the Interaction between Renewable Energy Markets/Policies and Emission Cap & Trade Regulation: Preserving the Emission Benefits of Renewable Energy (PDF 127 KB)."
- Lokey, E. (July 2007). "Valuing Renewable Energy in Emerging U.S. Carbon Markets." The Electricity Journal, Elsevier Inc.; Vol. 20(6).