Viewpoint: RGGI members up in the air in 2023

: Emissions
22/12/27

Political and legal fights over the Regional Greenhouse Gas Initiative (RGGI) will continue to affect the CO2allowances market, as Pennsylvania and North Carolina mull joining and Virginia eyes exiting the power plant cap-and-trade program.

The potential membership changes also are butting up against RGGI's program review, which is slated to conclude next year and could result in more stringent rules.

Uncertainty surrounding Pennsylvania looms large, since the state had planned to participate in 2022 with a CO2 cap of 78mn short tons. The cap for the other 11 RGGI states this year was 116mn st.

RGGI allowance prices have not recovered since the Commonwealth Court of Pennsylvania halted a regulation designed to enable the state to join. After missing every auction this year, Pennsylvania will also miss the first auction of 2023, if legal hurdles are not cleared by February.

That timeline could prove challenging. The state Supreme Court is currently reviewing whether the Commonwealth Court's injunction was rightly decided, and it could intervene again once the lower court issues a decision on the rule's legality in the coming weeks.

"Final adjudication of these matters is not expected until sometime next year," RGGI executive director Andrew McKeon said at a recent board meeting.

Governor-elect Josh Shapiro (D) has pledged to form a panel — potentially including industry, labor, and bipartisan group of lawmakers — to forge some compromise around RGGI. But any agreement with Republicans, who control the state Senate and may control the House again depending on who fills three vacant seats, would be a tough sell.

"I take the governor-elect at his word when he desires to have a collaborative approach on energy policy," said incoming Senate majority leader Joe Pittman (R). "The Senate Republican majority views the first step in such collaboration is to move Pennsylvania out of the RGGI scheme as quickly as possible."

Southern strategies

Virginia Republicans are similarly opposed to RGGI, and governor Glenn Youngkin (R) is now pushing for his state to exit the program by December 2023, after previous attempts to leave quickly faltered. A regulation to withdraw will come up for public comment soon before it heads back to a regulatory board skeptical of RGGI for final approval.

Democrats and environmentalists dispute Youngkin's contention that he can exit RGGI without legislative approval. Legal challenges are thus likely, and a court battle like in Pennsylvania could ensue in 2023 once a rule is published.

A successful exit would be significant, since Virginia accounted for 23pc of the RGGI allowance budget in 2022.

Further south, North Carolina has aimed to join RGGI by January 2024. But that schedule could be delayed. The Department of Environmental Quality (DEQ) told Argus there is no timeline for completing a fiscal analysis of the draft rulemaking, after indicating in July that it aimed to complete that review by November.

As in other states, Republicans have pushed legislation to block RGGI participation, although they will not be able to easily override vetoes from the Democratic governor after narrowly falling short of a supermajority in this year's elections.

For now, there is more focus on the North Carolina utility commission's mandate to develop a plan to reduce power plant CO2 emissions by 70pc by 2030. Some environmental groups have pushed for RGGI to feature in the commission's final plan, which is due by the end of the year.

RGGI could function as a "backstop" to the plan floated by Duke Energy, the state's largest utility, to ensure the targets are met, Environmental Defense Fund director of southeast climate and energy Will Scott said.

While North Carolina's entry into RGGI could happen later, DEQ has floated a cap of 38.6mn st for 2022 that would fall faster than other RGGI states through 2030.

By Cole Martin

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24/12/31

Viewpoint: Power demand could bolster RGGI allowances

Houston, 31 December (Argus) — Regional Greenhouse Gas Initiative (RGGI) CO2 allowances in 2025 could get a boost from a projected increase in electricity demand, despite uncertainty over the RGGI states' ongoing program review. Allowance prices hit record highs this past year, particularly during the summer as high temperatures raised expectations for emissions, increasing compliance demand. The first three auctions of 2024 cleared at record levels, draining the cost containment reserve (CCR) — a mechanism where additional allowances are released to temper rising prices — during the March auction . Prices followed suit in the secondary market, reaching multiple all-time highs before peaking on 20 August, with Argus assessing December 2024 and prompt-month allowances at $27.82/short ton (st) and $27.31/st, respectively. The increases have been fueled by anticipated growth in electricity demand as states work to implement policies promoting electrification in the transportation, industrial and heating sectors. In New England alone, peak power demand is forecast to double from 27,000MW to 55,000MW by 2050, according to an Acadia Center report . But the biggest source of this demand — and the steady climb in RGGI allowance prices since late-2023 — is the rapid expansion of data centers, according to University of Virginia professor William Shobe, who studies emissions market and auction design. New CO2-emitting sources such as natural gas-fired plants must factor rising allowance prices into the future cost of electricity in the long-run, Shobe said. As prices rise, other cleaner sources of energy, such as offshore wind and small modular reactors, will become more competitive, he said. Review the review The member states of RGGI launched a review of the program in February 2021. As power demand creates a potential for a bullish RGGI market, the review remains a source of uncertainty for participants and volatility in the secondary market. The program review includes considerations for a more ambitious emissions cap plan beyond 2030. But it has faced a number of delays and was originally scheduled to wrap up last year . Member states have provided few updates on the status and timeline of the review, leaving participants and environmental groups alike on tenterhooks over how a finalized program review — and with it, an updated emissions cap plan — will affect the future supply of allowances. Participants "are always thinking about future scarcity", said Shobe. "The more information we can give them about the future path of scarcity (of allowances) now, the more efficient their own behavior can be." The latest updates were released in September. They included an emissions cap plan that combined two previously floated proposals where the allowance budget starts at about 70mn st, declining at a rate consistent with a zero-by-2035 goal from 2027-2033 and a lower rate consistent with a zero-by-2040 goal from 2033-2037. Member states are also considering adding a second CCR and eliminating the emissions containment reserve (ECR), a market mechanism designed to respond to falling prices by withholding allowances. The review is planned to end in early 2025. A draft rule with additional modeling was to be released in the fall, but there have been no updates regarding another change in timeline. RGGI has not responded to requests for comment. States in limbo The status of Virginia — which left RGGI in 2023 — and Pennsylvania as potential members is another point of uncertainty as those states' participation are under legal scrutiny in their respective courts. Virginia's Floyd County Circuit Court in November ruled that regulation enabling the state's exit from RGGI was unlawful since it was enacted without legislative approval. Governor Glen Youngkin's (R) administration intends to appeal to the Supreme Court of Virginia sometime in 2025, but has declined to specify when. While it is unlikely Virginia will rejoin RGGI in the interim, its participation would increase demand for allowances and put an "upward pressure on price", Shobe said. Much of this demand would be fueled by data center expansion, as northern Virginia is the largest market for data centers in the world, with 25pc of all reported data center operational capacity in the Americas and 13pc globally, according to a report by a state legislative commission. The Supreme Court of Pennsylvania is also reviewing a lower-court decision striking down CO2 trading regulation allowing the state to participate in RGGI. Governor Josh Shapiro (D) has reluctantly defended Pennsylvania's membership in the program as an issue of preserving executive authority, and Republican state lawmakers have been attempting to revive legislation that would cement the state's exit from RGGI. The state's high court could issue a decision sometime in 2025. But Governor Shapiro also proposed a state-specific power plant CO2 cap-and-trade program earlier this year — another development participants should keep an eye on. By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: US Supreme Court tees up more energy cases

24/12/31

Viewpoint: US Supreme Court tees up more energy cases

Washington, 31 December (Argus) — The US Supreme Court is on track for another term that could significantly affect the energy sector, with rulings anticipated in the new year that could narrow environmental reviews and challenge California's authority to set its own tailpipe standards. The Supreme Court earlier this month held arguments in Seven County Infrastructure Coalition v Eagle County, Colorado , a case in which the justices are being asked to decide whether federal rail regulators adequately studied the environmental effects of a proposed 88-mile railway that would transport 80,000 b/d of crude. A lower court last year found the review, prepared under the National Environmental Policy Act (NEPA), should have analyzed how building the project would affect drilling and refining. Business groups want the Supreme Court to issue an expansive ruling that would limit NEPA reviews only to "proximate" effects, such as how rail traffic could affect nearby wildlife, rather than reviewing distance effects. The court recently agreed to hear a separate case that could restrict California's unique authority under the Clean Air Act to issue its own greenhouse gas regulations for newly sold cars and pickup trucks that are more stringent than federal standards. Oil refiners and biofuel producers in that case, Diamond Alternative Energy v EPA , say they should have "standing" to advance a lawsuit challenging those standards — even though they could now show prevailing in the case would change fuel demand — based on the alleged "coercive and predictable effects of regulation on third parties". These two cases, likely to be decided by the end of June, follow on the heels of the court's blockbuster decision in June overturning the decades-old "Chevron deference", a foundation for administration law that had given federal agencies greater flexibility when writing regulations. Last term, the court also limited agency enforcement powers and halted a rule targeting cross-state air pollution sources. This term's cases are unlikely to have as far-reaching consequences for the energy sector as overturning Chevron. But industry officials hope the two pending cases will provide clarity on issues that have been problematic for developers, including the scope of federal environmental reviews and the ability of industry to win legal "standing" to bring lawsuits. Two other cases could have significant effects for the oil sector, if the court agrees to consider them at a conference set for 10 January. Utah has a pending complaint before the court designed to force the US to dispose of 18.5mn acres of "unappropriated" federal land in the state, including oil-producing acreage. Utah argues that indefinitely retaining the land — which covers about a third of Utah — is unconstitutional. In another pending case, Sunoco and other oil companies have asked for a ruling that could halt a series of lawsuits filed against them in state courts for alleged damages from greenhouse gas emissions. President-elect Donald Trump's re-election could create complications for cases pending before the Supreme Court, if the incoming administration adopts new legal positions. Trump plans to nominate John Sauer, who successfully represented Trump in his presidential immunity case, as his solicitor general before the Supreme Court. By Chris Knight Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Bearish year ahead for NOx markets

24/12/30

Viewpoint: Bearish year ahead for NOx markets

Houston, 30 December (Argus) — The Cross-State Air Pollution Rule (CSAPR) NOx allowance markets will likely face a bearish year in 2025, as the incoming administration of president-elect Donald Trump creates uncertainty over the fate of the latest federal regulation to curb emissions. The US Supreme Court halted implementation of the US Environmental Protection Agency's (EPA) "good neighbor" plan in June with a nationwide stay. This left an already stunted regulation to cut NOx emissions, a precursor to harmful ground-level ozone, obsolete for the foreseeable future. EPA finalized a plan in March 2023 to help downwind states meet the 2015 national air quality standards by setting tighter ozone season NOx caps on power plants covered by CSPAR as well as new limits for industrial facilities in more than 20 upwind states. But by the time the justices issued the stay, the number of covered states had already shrunk by more than half because of lower-court orders pausing implementation in 12 states. Prices for seasonal NOx allowances have flatlined and the market has been illiquid over much of 2024 because of uncertainty over how numerous legal challenges against the good neighbor plan would play out. Argus has assessed Group 2 allowances at $775/short ton (st) and Group 3 allowances at a record low $1,250/st since January. This could change, albeit at a slow pace, because EPA finalized an interim rule in November to comply with the nationwide stay. Power plants that had been covered by the good neighbor plan are now under less-stringent NOx budgets tied to older air quality standards, and the 10 states that had been participating in the Group 3 market prior to the stay are now reshuffled into Group 2 and a separate 12-state "expanded" Group 2 market. All that remains is… uncertainty In the new year, the market will wait to see how the Trump administration will deal with the good neighbor plan and the associated legal challenges in the US Court of Appeals for the DC Circuit and the US Supreme Court. Because of the stay, there is no hurry for the new administration to address the legal woes, and it is unlikely the DC Circuit will soon rule on the legality of EPA's rejection of state ozone reduction plans. The Trump EPA, following precedent of prior administrations, will likely ask the court to pause litigation until it decides whether to continue defending the plan, according to Jeff Holmstead, assistant administrator at the agency under former president George W Bush. The agency will likely revoke the plan at some point and replace it with a rule that is more "modest" and would not significantly affect allowance prices, he said. The EPA under Trump could ultimately decide that upwind states do not significantly contribute to interstate pollution, reversing a determination that has underpinned the good neighbor plan. That could lead to downwind states asking the agency to address specific sources that contribute to their air quality problems, said Carrie Jenks, executive director of Harvard Law School's Environmental and Energy Law Program. The Supreme Court is also hearing a case to decide the proper court venue for Clean Air Act disputes, which involves the good neighbor plan. The Trump administration likely will agree with various states and industry groups that say EPA's rejections of individual state plans are not a "nationally applicable" action and must be litigated in the regional circuit courts, but the Supreme Court is likely to continue the venue case, Jenks said. Oral arguments will likely be held early next year. It is also unclear how Lee Zeldin, Trump's pick to lead EPA will affect the regulation. Zeldin is a moderate, given his history, and will likely "not want to impose significant new burdens on fossil fuel power plants", Holmstead said. Trump's plans to downsize the federal bureaucracy could also affect future rulemakings, according to Jenks. "Nobody really knows what's going to happen," she said. As a result, market activity is likely to remain limited in the coming months as participants await legal and regulatory clarity. In addition, markets are likely to be oversupplied now that power plants are under lighter NOx caps. Most states in the seasonal NOx markets were well below their limits for the 2024 ozone season, despite a 9.2pc increase in cumulative emissions in the expanded Group 2. EPA will also allow some power plants to convert vintage 2021-23 Group 3 allowances to Group 2 or expanded Group 2 allowances, adding to supply. With low demand and a potential oversupply, seasonal NOx allowances could see prices fall . By Ida Balakrishna Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: Carbon offsets face bumpy road

24/12/30

Viewpoint: Carbon offsets face bumpy road

Houston, 30 December (Argus) — Carbon offset credits from California's cap-and-trade program will meet reduced compliance demand next year, while program updates promise to upend market dynamics. Each carbon offset under the joint California-Quebec carbon market, known as the Western Climate Initiative (WCI) equals 1 metric tonne of greenhouse gas (GHG) emissions from sources not covered by either cap-and-trade program. California and Quebec allow covered entities to use offsets from either program to meet their annual GHG emissions obligations. But market regulators are eyeing changes for carbon offsets in Quebec that may have wider impacts. Quebec is considering phasing out carbon offsets by 2030 as part of an ongoing rulemaking for a more-stringent program. While the province has not shared its final approach, regulators have floated in workshops either limiting offset use to 4pc of overall obligations for 2027-29 or putting offsets under the program's emissions cap. Quebec's Environment Ministry allows for covered entities to utilize carbon offsets for up to 8pc of outstanding emissions, including from California. Meanwhile, the California Air Resources Board (CARB) allows for covered entities to use CCOs for 4pc of obligations through 2025 and for 6pc starting in 2026, though at least half must come from projects that provide direct environmental benefits to the state (DEBs). After 2031, Quebec is mulling transitioning to a government carbon offset purchase-and-retire system, but it remains unclear how that might function — and what it means for the longevity of carbon offset projects in Quebec, said Joey Hoekstra, a policy associate with International Emissions Trading Association (IETA). "That mechanism and how that is going to look like and what that will be, there has not been a lot of details," he said. Quebec plans to finalize its program changes early in 2025 , with implementation in the spring. The move away from carbon offsets has implications for California's program, ClimeCo chief operating officer Derek Six said. "Quebec is an outlet for the non-DEBs credits in California," Six said. The province issues very few carbon offsets under its own protocols, just under 1.8mn since 2014, according to provincial data published in November. California, which allows for projects to generate credits in and outside the state, issued nearly 13.8mn CCOs in 2023 alone, with just under 9.6mn from non-DEBs projects. The CCOs without DEBs are an oversupplied market, said Six, compared with the limited number of projects that generate the more expensive DEBs credits in California. Argus last assessed California Carbon Offsets (CCOs) seller-guaranteed offsets at $14.60/t, CCOs with a three-year invalidation at $14/t and CCOs with an eight-year invalidation at $13.90/t on 20 December. CCOs with direct environmental benefits to the state (DEBS) currently trade at an $15.50/t premium to non-DEBs CCOs. In issuances over the past five years, non-DEBs have formed the bulk of credits distributed by CARB, with DEBS-eligible credits only going as high as 42.3pc of total issuances this year. Covered emitters in Quebec used 13.2mn non-DEBs CCOs to meet their 2021-2023 compliance obligations, along with roughly 75,000 CCOs with DEBS. Provincial entities used just under 366,400 carbon offsets generated in Quebec for compliance. California emitters utilized 13.2mn non-DEBs CCOs and nearly 13mn DEBs CCOs for their 2021-2023 compliance. Washington, which hopes to link its cap-and-trade program with the WCI as early as 2026, is unlikely to stopgap the shortfall in demand for non-DEBs credits once it allows outside credits, instead feeding further demand for DEBS CCOs. The state allows participants to use carbon offsets for 5pc of its emissions and a further 3pc from projects on federally recognized tribal lands over 2024-2026, reduced to 4pc and 2pc, respectively, for 2027-2049. The state's ongoing linkage rulemaking would allow the participants to use offsets from within a linked jurisdiction, which will include CCOs with DEBs and Quebec offsets. Washington's cap-and-invest, which started in 2023, has generated few offsets of its own so far — just over 310,000t, all from ODS projects. But that may change in the short term, Six said. Project developers have likely been holding off over this year until voters rejected an effort to repeal the state's program in November. "I would not be surprised if you all of a sudden see a bit of a flood of project listings from people who had Washington ODS material," he said. Washington is also conducting a rulemaking to increase the variety of projects resulting in carbon offsets credits. Ecology plans to implement these changes in summer 2025. But carbon offsets remain unlikely to be much of a cost-saving measure for compliance in Washington, Six said. Washington, unlike California or Quebec, puts them under its annual emissions cap and removes allowances in line with offset use. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Viewpoint: California-Quebec carbon faces murky 2025

24/12/27

Viewpoint: California-Quebec carbon faces murky 2025

Houston, 27 December (Argus) — The joint California-Quebec climate market, known as the Western Climate Initiative (WCI), is on tenterhooks going into 2025, stymied by rulemaking delays but on the cusp of a more mature phase. Both California and Quebec are eyeing more-stringent future programs and have floated a series of changes over the past year and a half designed to achieve those goals. The California Air Resources Board (CARB) is considering moving its program's mandate from the present 2030 target of a 40pc reduction in greenhouse gas (GHG) emissions, compared with 1990 levels, to a 48pc reduction to keep the state on target to meet its 2045 goal of net-zero emissions. In line with this increased ambition, CARB will need to remove at least 180mn metric tonnes (t) of allowances from the 2026-2030 auction and allocation annual budgets to start with, and up to 265mn t in total from the program budgets from 2026-2045. CARB has floated other changes , including toughening corporate relationship disclosure requirements, increasing the program's cost-containment allowance price tiers and updating a portion of the program's carbon offset protocols. Quebec has considered removing 17.5mn t of allowances, which correspond to carbon offset uses for compliance in the province over 2013-2020. The Quebec Environmental Ministry proposed to address this by removing these allowances from the province's 2025-2030 auction budgets in a November 2023 workshop. Quebec is also mulling changing the current three-year compliance period to align with statutory 2030 and 2050 GHG targets. But this a move that California, which had discussed similar compliance period changes in April , has not revisited since. Quebec is considering tapering the limit for carbon offset use for compliance in the province by 2030 and transitioning over to a provincial reduction purchase mechanism in 2031, although regulators have not gone in-depth on how a replacement system would function. The WCI rulemakings have been marked by a series of delays over this year, pushing past projections from the end of last year that it would finalize program changes by the second half of 2024. Quebec, which was set to deliver a draft of program amendments in September, rescheduled to early 2025, with implementation expected in spring 2025. While the regulation was nearly complete in late September, the Quebec Environmental Ministry chose to postpone, since it cannot publish before California, said Jean-Yves Benoit, the agency's director general of carbon regulation and emissions data. CARB has signaled it intends to publish its package of rulemaking amendments in early 2025. The agency on 19 December confirmed it expects to "complete and release the regulatory package for a 45-day public comment period" in early 2025 but did not explain the delay. The agency may be waiting for a formal extension of the cap-and-trade program when the legislature resumes on 6 January. California lawmakers have given CARB explicit authority to utilize a cap-and-trade system to reduce GHG emissions out to 2030. CARB maintains it has authority to operate a cap-and-trade program past 2030, but program participants have stressed the need for formal certainty around the program to aid future planning. CARB will begin invoking the post-2030 budgets starting in 2028 for the program's advance auctions. The various delays have compressed the timelines California and Quebec must achieve their statutory target ambitions, making 2025 a potentially pivotal year. By Denise Cathey Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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