1. Preliminary Comments on the RGGI Model Rule Seth Kaplan Conservation Law Foundation RGGI Stakeholder meeting May 2, 2006

2. RGGI promises mild emissions reductions from one sector in one region- Let’s actually do that Leakage threatens to undermine this goal Other threats to integrity: Overuse of flexibility mechanisms (Further) inflation of Cap – exclusion of sources Citizens (voters, ratepayers) need to know that the program is actually reducing emissions Demonstrate that real reductions are possible Create deeply credible program that can expand

3. “Non-Offset” Issue #1: Leakage Integrity, Credibility & Effectiveness can’t be disentangled from each other – Deliver results using least-cost method (Utility regulatory vocabulary not bad to use), think about politics RECOMMENDATIONS Air Agency must have affirmative duty under model rule to coordinate with Utility Commission – providing data about compliance in the state, region and overall emissions of Greenhouse Gases Urgent need for Utility Commission model rule/order for creating parallel RGGI implementation – Air Agency model rule can anticipate and call for such a rule/order

4. “Non-Offset” Issue #2: Cap Integrity Reality: Initial inflated cap, the flatness of cap going forward and mild reductions thereafter Cap Levels in MOU are negotiated “floor” – inflation and exclusions are contrary to MOU RECOMMENDATIONS Remove 50% Biomass exclusion – rely on co-firing rules What is wrong with having large biomass reporting? Early Reduction Credits can not be additional to the cap This is just an improper form of banking

5. RGGI promises mild emissions reductions from one sector in one region- Let’s actually do that (2) Overuse of offsets would transform the program into extremely weak national multi-sector program 10% reduction of 30% of emissions from 10% of sources = A number that rounds to zero Citizens (voters, ratepayers) need to know that the program is actually reducing emissions Demonstrate that real reductions are possible Let’s get this sector right, then expand

6. Offset Issue #1: Are Offsets worth the trouble? Limited need for offsets, especially in early years Increasingly clear that offsets will most complex and expensive to administer part of the program RECOMMENDATIONS Simplify by reiterating basic eligibility rules (RSVP & E) Reconsider the “triggers” – keep program regional? If complexity is needed for integrity then drop the category for the moment, greatly reducing startup cost of RO and state implementation

7. Offset Issue #2: Avoiding Perverse Incentives Model Rule appears to be simply listing “best practices”; clarity is laudable BUT If you want it to be mandatory in near future don’t give it offset credit: think about precedent and commercial interests that are being created RECOMMENDATIONS Skeptically reevaluate all criteria, asking question about “should it be mandatory?” if yes, then shouldn’t be eligible, consider that offsets might not be right tool Categories like SF6 & End Use efficiency should go well beyond current best practices and then sunset quickly