Virginia’s department of environmental quality (DEQ) has released draft carbon regulation that would enable the state to link with the regional greenhouse gas initiative (RGGI), and RGGI officials said the proposal appears compatible.
Virginia Governor Terry McAuliffe signed an executive directive in May that instructed the Virginia DEQ to develop carbon regulation for the power sector, and the regulation should enable a trading-ready system that could operate in a multi-state programme.
The draft proposal would create a cap-and-trade programme in 2020 and would create an indirect link with RGGI at the start of the programme.
The draft has two budget options that would start at either 34m tCO2e or 33m tCO2e in 2020 and decline annually by roughly 3% to 23.80m tCO2e or 23.10m tCO2e respectively in 2030. The proposal also includes a cost containment reserve (CCR) and an emission containment reserve (ECR).
The CCR and ECR triggers for Virginia’s programme mirror those proposed in RGGI’s draft model rule. The volume of the reserves also are 10% of the proposed caps, which is the same approach that RGGI has proposed.
However, there are differences between Virginia’s programme and RGGI’s draft model rule. Because of legal concerns, Virginia will allocate 95% of allowances to utilities that will then be required to consign them to Virginia auctions.
Allocations would be based on an entity’s three previous years of emissions data and would account for the declining annual cap. Utilities consignment would be impacted if allowances are removed because of the ECR.
Utilities would be required to use auction revenues to minimise the impact on consumers. The consignment approach is similar to California’s power and natural gas sectors’ consignment requirements.
The Department of Mines, Minerals and Energy (DMME) would be allocated the remaining 5% of the state budget. Those allowances would also be allocated to auctions through a third party that is contracted by the state agency. The regulation outlines how those revenues can be used.
All consigned allowances would be auctioned through RGGI auctions, according to the regulation. Those allowances would also be transacted through RGGI’s tracking system as well.
In addition to those elements, Virginia also included language that would enable the state to adjust the caps in 2021-2025 for surplus allowances. RGGI has also proposed a cap adjustment in the 2021-2025 timeframe, but it has not determined that adjustment yet.
That element would prevent Virginia’s linkage from potentially watering down the RGGI programme if Virginia is found to be oversupplied.
Throughout the document, Virginia DEQ said a linkage or connection with RGGI seemed like the most realistic option.
“We believe that linking to RGGI is the most realistic and effective means to accomplish this [executive directive],” DEQ wrote.
Virginia said it would also alter its regulation to adhere to any final changes in RGGI’s model rule. A final version is expected later this year.
RGGI said the Virginia proposal appeared to be consistent with its programme, and they looked forward to evaluating the programme.
“The RGGI states have held productive and collaborative conversations with Virginia representatives as they crafted their regulation, and look forward to continuing those conversations as Virginia’s program design process advances,” RGGI said.
The programme is expected to progress forward as it is set to be heard at the Virginia Air Pollution Control Board next week.
It also gained further support from Tuesday’s gubernatorial elections as McAuliffe is set to leave office next year. Democrat Ralph Northam handedly won the gubernatorial election, likely extending support for the programme in the future.