US: EPA decision could be important for California and RGGI systems

08 January 2014 15:35 Source:ICIS

The US Environmental Protection Agency’s (EPA’s) rules for existing power sources could be a boon for cap-and-trade programmes in California and the northeast of the country.

The EPA is expected to release draft rules this summer for existing power plants as part of the Clean Air Act. Traders said the ruling could force states to adhere to the EPA’s rules or join a regional cap-and-trade programme, such as the California’s emissions trading system or the Regional Greenhouse Gas Initiative (RGGI). RGGI was the US’s first cap-and-trade emissions-reduction system and mainly targets emissions from the power sector in the northeast.

“California or RGGI could be attractive options because it could be less onerous for states to comply with them than the EPA’s guidelines,” said a trader from a trading house.

The EPA has already proposed stringent rules for new power plants. Those draft rules would limit emissions from natural gas-fired plants to 1,000 pounds of CO2 per MWh and 1,100 pounds of CO2 per MWh for new coal-fired units.

Many market participants believe the EPA’s decision for existing power plants could propel states to make a decision on how to deal with carbon emissions. Oregon and Washington are two states exploring ways to cut greenhouse gases ahead of the EPA’s decision. Oregon is contemplating a carbon tax, and Washington is debating a cap-and-trade programme. California Air Resource Board officials have said both would be attractive partners for future expansion.

But an executive at a California compliance utility said the state’s programme might not be the ideal programme for states looking to comply with the Clean Air Act without hindering development of new business.

“RGGI would be much more attractive because it is electric sector only,” the executive said. “It is a bit simpler and more attractive to other states than California.”

States ask EPA for flexibility

California and 14 other states wrote a letter to EPA Administrator Gina McCarthy in December that asked the EPA to consider a flexible plan for existing power sources. The states are hoping the rules on existing power plants will not restrict states involved in a cap-and-trade or other emission reduction programmes.

A carbon consultant said the EPA is unlikely to make rules that would restrict states using a cap-and-trade system or some other emissions reduction programme, such as California’s renewable portfolio standard.

California made a similar plea to the EPA in 2011. Back then, it asked the agency to give states the power to tackle greenhouse gas emissions from new power plants. Dan X McGraw

By Dan X. McGraw