ALBANY, NY (12/30/05) -- Governor George E. Pataki has announced an historic regional agreement to reduce greenhouse gas emissions from power plants, an important step to protect our environment and meet the significant challenge of climate change.

Under the Regional Greenhouse Gas Initiative (RGGI), seven Northeast states have agreed to implement a cap-and-trade program to lower carbon dioxide (CO2) emissions, which are a major contributor to global warming. This is the first mandatory cap-and-trade program for CO2 emission in U.S. history. In addition to New York, other states signing the regional Memorandum of Understanding for RGGI are: Connecticut, Delaware, Maine, New Hampshire, New Jersey, and Vermont.

Governor Pataki emphasized the importance of enacting a regional pact to better protect our environment and promote new energy-efficient technologies at the lowest possible cost.

"Our environment is a vibrant, living resource that needs to be protected, and I am proud that a coalition of Northeast states is taking action to address this major environmental challenge," Governor Pataki said. "Under this program, we will use a market-based system to curtail harmful CO2 emissions and spur the development of innovative technologies that will reduce our dependence on foreign energy, strengthen our economy, and take meaningful steps in the fight against climate change.

"My goal in proposing the Regional Greenhouse Gas Initiative in 2003 was to bring states together to tackle a significant environmental challenge that we all face, knowing that a collaborative effort is the most effective policy,” Governor Pataki said. “I want to extend my thanks to the governors and staffs of all the states that have been a part of this historic effort. Their hard work and dedication has helped us produce an effective program that will be a model for others to emulate."

In 2003, Governor Pataki initiated the RGGI process by sending a letter to Northeast states inviting them to pursue "a course of cooperation" and work together "to develop a strategy that will help the region lead the nation in the effort to fight global climate change." For the past two-and-a-half years, state representatives have been working to develop the program, which relies on a free-market approach to curb power plant emissions, while also promoting greater energy efficiency and energy independence.

Under RGGI, the seven states will create a regional cap-and-trade system that utilizes emissions credits or allowances to limit the total amount of emissions. Beginning in 2009, emissions of CO2 from power plants in the region would be capped at current levels – approximately 121 million tons annually – with this cap remaining in place until 2015. The states would then begin reducing emissions incrementally over a four-year period to achieve a 10 percent reduction by 2019.

Under the cap-and-trade program, the states will issue one allowance, or permit, for each ton of CO2 emissions allowed by the cap. Each plant will be required to have enough allowances to cover its reported emissions. The plants may buy or sell allowances, but an individual plant’s emissions cannot exceed the amount of allowances it possesses. The total amount of the allowances will be equal to the emissions cap for the seven-state region. Electric generating units with a capacity of 25 megawatts or more will be included under RGGI.

The RGGI agreement calls for at least 25 percent of a state’s allowances to be dedicated to strategic energy or consumer benefit purposes, such as energy efficiency, new clean energy technologies and ratepayer rebates. A power plant also could purchase these allowances for its own use. The funds generated from these sales will be used for beneficial energy programs.

This agreement allows power plants to utilize "offsets"- greenhouse gas emission reduction projects from outside the electricity sector - to account for up to 3.3 percent of their overall emissions. Offset projects provide generators with additional flexibility to meet their compliance obligations at the lowest cost. A power plant owner/operator will be allowed to select the lowest cost emission reductions and apply them to a portion of the plant’s emissions requirement. Examples of offset projects include: natural gas end-use efficiency, landfill gas recovery, reforestation, and methane capture from farming or natural gas transmission facilities. Under the program, offset projects will be accepted from anywhere in the United States, with a 2:1 preference for projects undertaken in the participating RGGI state.

The program incorporates additional measures to ensure that the cost of allowances remains affordable. For example, if the average annual price of an emission allowance were to rise above $7, offsets would then be allowed from anywhere in North America at a 1:1 ratio and could be utilized to offset up to 5 percent of a plant’s reported emissions. By expanding the regional area from which to find offset projects and allowing offsets to account for a greater percentage of emissions, this will help to keep energy prices low while also achieving real reductions in greenhouse gas emissions.

The agreement also establishes a $10 per allowance "safety valve." Under this provision, if allowances exceed $10 for a sustained period of time, the compliance period would be extended by the states, and the generators would be allowed to use offsets for up to 20 percent of their reported emissions. Under the "safety valve," offset projects also would be allowed from international trading programs.

Any price impacts of this program are expected to be minimal, with estimates projecting that average household bills could increase by approximately $3-21 annually. However, it also is anticipated that RGGI will generate significant new investments in innovative and cleaner technologies and energy efficiency, which could lower electricity rates.

The participating states plan to issue a draft model regulation for public review and comment in early 2006. Each individual state will then proceed with the required legislative or regulatory approvals to adopt the program. Pending the completion of this process, the RGGI program is slated to begin on January 1, 2009.

The Memorandum of Understanding also allows other states to join the regional program.