1. RGGI Model Rule CO2 Offset Provisions End Use Energy Efficiency Offset Eligibility May 2, 2006 Bob Teetz

2. 2 Offset Provisions Model Rule Section XX-10.5 (d) establishes the eligibility of CO2 reductions achieved through end-use energy efficiency Sub-paragraph (viii) establishes the eligibility of fuel switching to less carbon intensive fuels as a viable end-use energy efficiency project type KeySpan endorses the concept –Category should be called end-use energy/carbon efficiency projects

3. 3 Switching to lower carbon fuel can achieve significant CO2 reductions and create substantial offsets Natural gas produces * : –44% less CO2 than coal –31% less CO2 than heavy commercial heating oil –27% less CO2 than home heating oil –16% less CO2 than propane Northeast has significant market potential for offset creation –only ~55% of fossil heating load currently satisfied by natural gas vs. ~76% in the US –Raising the Northeast market penetration to 65% would create about 4 million tons of CO2 offsets annually! * Based on carbon fuel factor and identical thermal efficiency of the combustion systems

4. 4 Energy Efficiency Performance Standards are Not Directly Applicable to Fuel Switching Fuel switching alone has more CO2 reduction potential than typical energy efficiency projects –Model rule should encourage use of lower carbon fuels –Treat fuel switching as a separate offset category –Significant co-benefits Section XX-10.5 (d) 3 performance standards should not be applicable to fuel switching offset projects –5% market penetration restriction - precludes fuel switching –Combustion equipment sizing criteria 3(i)c – unnecessary –Building energy performance criteria 3(iii) - unnecessary

5. 5 Lower Carbon Intensity Fuel Switching Performance Standard Simply require that thermal efficiency following conversion to lower carbon intense fuel must be equivalent to or better than thermal efficiency prior to conversion –Ensures that the full benefit of lower carbon intensive fuel is realized –Any incremental efficiency improvement would provide further CO2 reduction and can be applied for and credited separately in accordance with the energy efficiency performance standards

6. 6 Monitoring and Verification is Straight Forward Applicant provides before and after conversion thermal efficiency certification to prove that post-conversion thermal efficiency is equal to or better than pre-conversion condition Submits proof of annual quantity of lower carbon fuel use (total btus) Annual offsets = carbon fuel factor differential (eg. gas vs oil) times annual quantity of lower carbon fuel use