State Air Pollution Control Board October 29, 2018

State Air Pollution Control Board October 29, 2018

State Air Pollution Control Board October 29, 2018 Carbon Dioxide Trading Program (Rev. C17) Re-Proposed Regulation 1 State Air Pollution Control Board October 29, 2018 BACKGROUND: Executive Order 57 June 2016: Governor McAuliffe issued EO 57 directing the Secretary of Natural Resources to convene a Work Group to develop recommendations to reduce Virginias carbon

emissions under existing state authority Work Group held 6 meetings (8/31/16-2/28/17) 40 presentations Three month public comment period (2/1/174/30/17) 8,000 written comments 2 State Air Pollution Control Board October 29, 2018 BACKGROUND: EO 57 Work Group recommendations May 12, 2017: Group Report to the Governor "The Work Group received a number of presentations and written comments from stakeholders advocating for a regulation to limit carbon dioxide emissions from power plants. These comments included

recommendations that the Commonwealth join or participate in the Regional Greenhouse Gas Initiative (RGGI) or another regional trading program, that a price be put on carbon, and that Virginia strive to reduce its greenhouse gas emissions by 30 to 40 percent by the year 2030." 3 State Air Pollution Control Board October 29, 2018 BACKGROUND: EO 57 Work Group Recommendations First recommendation: "The Work Group recommends that the Governor consider taking action via a regulatory process to establish a 'trading-ready' carbon emissions

reduction program for fossil fuel fired electric generating facilities that will enable participation in a broader, established multistate carbon market." 4 State Air Pollution Control Board October 29, 2018 RGGI The Regional Greenhouse Gas Initiative (RGGI) program is a carbon cap-andtrade program covering fossil fuel-fired electric generating units in nine northeast and mid-Atlantic states NY, ME, NH, VT, MA, RI, CT, DE, MD Covered sources purchase allowances in quarterly auctions run by RGGI, Inc., with

the revenue returned to states 5 State Air Pollution Control Board October 29, 2018 RGGI (Cont.) RGGI is a consensus-based program All participating RGGI states, as a practical matter, regulate only fossil-fuel emissions From electric generating units 25MW or greater 6 State Air Pollution Control Board

October 29, 2018 BACKGROUND: AG Opinion May 12, 2017: Virginia Attorney General issued an official advisory opinion that concluded the board is legally authorized to regulate GHG "The Board has the authority to establish a statewide cap on GHG emissions for all new and existing fossil fuel electric generating plants as a means of abating and controlling such emissions" 7 State Air Pollution Control Board October 29, 2018 BACKGROUND: Executive Directive 11

Following up on the EO-57 Workgroups recommendations and the AGs opinion, on May 16, 2017, Governor McAuliffe issued ED-11 directing DEQ to develop a proposed regulation for the board's consideration to abate, control, or limit carbon dioxide emissions from electric power facilities that: Includes provisions to ensure that Virginias regulation is trading-ready to allow for the use of market-based mechanisms and the trading of CO2 allowances through a multi-state trading program; and Establishes abatement mechanisms providing for a corresponding level of stringency to limits on CO2 emissions imposed in other states with such limits 14 State Air Pollution Control Board October 29, 2018

OBJECTIVE In accordance with ED-11, DEQ prepared and presented to the board in late 2017 a proposed carbon cap and trade rule for new and existing fossil-fuel electric power generating facilities that was both Under existing board authority and Linkable to the RGGI program 9 State Air Pollution Control Board October 29, 2018 REGULATORY PROCESS Full regulatory adoption process is required Action is necessary to meet state executive

branch requirements Public input is important; thoroughness of the standard process gives all interested parties opportunity to scrutinize proposal and provide feedback 10 State Air Pollution Control Board October 29, 2018 REGULATORY PROCESS TO DATE June 26, 2017: Notice of Intended Regulatory Action (NOIRA) published in Virginia Register June 26-July 26, 2017: Public comment period August-September: regulatory advisory panel (RAP) November 16, 2017: Board approved proposed regulation for publication January 8 - April 9, 2018: Public comment period

October 29, 2018: Re-proposal to board for approval 11 State Air Pollution Control Board October 29, 2018 PROPOSED REGULATION: STRUCTURE Carbon cap-and-trade commencing in 2020 Framework is RGGI August 2017 model rule Modified to operate as a Virginia rule with additional provisions and modifications Allocation of "conditional allowances" to covered sources with required consignment to RGGI auctions 12 State Air Pollution Control Board

October 29, 2018 COVERED SOURCES Consistent with RGGI Fossil fuel-fired electric generating units 25 MW and greater Fossil fuel Referred to as "CO2 Budget Sources" Each CO2 Budget Source must hold a CO2 allowance for every ton of CO2 emitted during a "Control Period" Industrial and biomass units exempted 13 State Air Pollution Control Board October 29, 2018

Fossil fuel-fired electric generating units with 25 MW capacity Fossil fuel-fired electric generating units with 25 MW capacity 14 State Air Pollution Control Board October 29, 2018 PUBLIC COMMENT TO DATE Original comment period January 8 - April 9, 2018 Public hearings throughout the state >7100 commenters (personal communication, Town Hall, petitions, etc.) Comment topics - General support or opposition - Allowance allocations

- Applicability: biomass, industrials - Auction and trading mechanisms - CO2 base budget - Cost/benefit; need - Environmental justice - Leakage - Legal issues - Offsets - Program review, post 2030 - RGGI program mechanisms - Set-asides 15 State Air Pollution Control Board October 29, 2018 WHY RE-PROPOSE?

DEQ is recommending a meaningful change from the rule as originally proposed Important enough to warrant additional public comment Satisfy requirements of Administrative Process Act Structure and basic elements of reproposed rule remain unchanged 16 State Air Pollution Control Board October 29, 2018 REVISION TO ORIGINAL CO2 BASE BUDGETS Rule as originally proposed presented

two alternate initial CO2 Base Budgets commencing in 2020 33 million tons based on ICF Reference Case (business as usual) modeling using Virginia assumptions 34 million tons based on ICF Reference Case modeling using RGGI assumptions 17 State Air Pollution Control Board October 29, 2018 RE-PROPOSED CO2 BASE BUDGETS The Department is re-proposing an initial CO2 base budget of 28 million tons commencing in 2020

Subsequent annual CO2 budgets, which decline by 3% a year under the original proposal, are reduced accordingly 18 State Air Pollution Control Board October 29, 2018 ICF MODELING The Georgetown Climate Center contracted with ICF to analyze the potential impacts of Virginias participation in RGGI Virginia DEQ specified the assumptions, sources and scenario specifications for the analysis VA Reference Cases One uses assumptions provided by VA DEQ One uses same assumptions used by RGGI states

VA Policy Scenarios Modeled a cap in VA similar to RGGI and linked to RGGI, against both reference cases 19 State Air Pollution Control Board October 29, 2018 WHY DID WE RE-MODEL? Public comments A lot can change in a year More rapid introduction of renewable energy and energy efficiency than previously anticipated GTSA Increased RGGI state additions Foster better integration into the RGGI

program 20 State Air Pollution Control Board October 29, 2018 REASON FOR RE-PROPOSED CO2 BASE BUDGETS New ICF modeling indicates Virginias CO2 Budget Sources will emit 28 million tons of CO2 in 2020 under a business-as-usual scenario One reference case run with combined VA/RGGI assumptions updated from 2017 Greater amounts of renewable energy and energy efficiency coming on line in Virginia and RGGI states by 2020 than previously assumed

21 State Air Pollution Control Board October 29, 2018 MODELING ASSUMPTIONS Updated demand projections Demand projections are down in most RGGI states Updated natural gas prices Lower than previously modeled 2018 Grid Transformation & Security Act (GTSA) commitments Up to 5,000 megawatts of renewable energy Significant energy efficiency investments by regulated utilities (close to $1 billion)

Significant clean energy deployments in the RGGI states 22 State Air Pollution Control Board October 29, 2018 Re-proposed trading rule yearly CO2 budgets 23 State Air Pollution Control Board October 29, 2018 COSTS

All of the firm power price projections are lower than the previous modeling exercise in 2017 2020: 14% less* 2030: 29% less* * 2017 Va. assumptions policy run v. 2018 policy run The cost of the program will be less for consumers and regulated sources than previously estimated 24 State Air Pollution Control Board October 29, 2018 MODELED COSTS VA Reference Case

2020 2022 2025 2028 2030 28 27 27 29

29 VA Firm Power Prices (2017$/MWh) $32.70 $33.00 $34.50 $34.30 $34.40 VA Policy Case 2020

2022 2025 2028 2030 VA Firm Power Prices (2017$/MWh) $33.00 (1.0%) $33.20 (<1.0%)

$35.00 (1.2%) $34.50 (<1.0%) $34.50 (<1.0%) VA CO2 Emissions (Million Tons) 25 State Air Pollution Control Board October 29, 2018 OTHER CHANGES TO THE PROPOSAL

Changes made to track with latest RGGI model rule Clarify program applies only to CO2 emissions from fossil fuel combustion NOT INTENDED TO IMPLY DEQ BELIEVES BIOMASS COMBUSTION IS NECESSARILY CARBON-NEUTRAL Industrial exemption clarified New Article 10 program review to include consideration of community impacts 26 State Air Pollution Control Board October 29, 2018 Industrial Exemption Exemption language clarified to include specific limits to excess power to the grid

2 options provided for existing industrial sources to qualify for exemption 10% net electrical generation sent to grid, or 15% useful thermal energy provided to an entity other than the manufacturing facility to which the budget source is interconnected Permit conditions are required 27 State Air Pollution Control Board October 29, 2018 Industrial Exemption (Cont.) Would apply to 6 existing facilities in Virginia (paper mills and CHP facilities) New greenfield industrial electric generating units facilities would be covered by program if they otherwise meet the applicability

criteria Existing facilities would retain the exemption to modify and expand within New Source Review air permit requirements so long as they continued to meet exemption criteria Emissions impact of the exemption is minimal 1.2 million tons in 2016 Some RGGI states have some form of exemption MA, MD, ME, DE Other RGGI states dont include the exemption because they dont have any affected industrial sources 28 State Air Pollution Control Board October 29, 2018

Periodic Program Review and Environmental Justice DEQ to re-assess CO2 base budget in next RGGI program review Va. Code 2.2-4017 (APA) requires agencies review regulations every four years New Article 10 recognizes DEQs commitment to environmental justice while providing Department with flexibility to listen to communities and fashion solutions on a case-by-case basis 29 State Air Pollution Control Board October 29, 2018 REGULATORY PROCESS: WHAT'S NEXT

October 29: Re-proposed regulation presented to the Board Executive review: Department of Planning and Budget Secretary of Natural Resources Governor Publication in Virginia Register Commences a 30-day public comment period Final stage; board meeting likely Spring 2019 30 State Air Pollution Control Board October 29, 2018 Department Recommendation:

That the board authorize the department to promulgate the re-proposal for public comment in accordance with the APA. 31

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