New Jersey DEP Proposes RGGI Regulations

August 16, 2008
Client Alert Newsletter August 2008

On July 7, 2008, the New Jersey Department of Environmental Protection ("DEP") proposed regulations to establish a CO2 cap-and-trade program for fossil-fuel-fired electric generators as part of its participation in the Regional Greenhouse Gas Initiative ("RGGI"). RGGI is a cap-and-trade program among ten Northeast and Mid-Atlantic states designed to reduce greenhouse gas emissions from power plants in the region. The proposed rules are generally consistent with a model rule developed by the RGGI Staff Working Group and finalized in August 2006. With respect to distribution of CO2 allowances, an area where the model rule allows some flexibility, the proposed New Jersey rule provides for up to 99 percent of New Jersey's CO2 allowances to be sold via auction rather than allocated for free. Certain cogeneration units that qualify as "dispatch agreement facilities" or that meet certain thermal efficiency standards are eligible to receive allowances for free or at a reduced cost. In addition, the proposed rule allows for up to one percent of New Jersey's annual CO2 allowances to be set aside and retired to account for the voluntary purchase of qualified renewable energy, such as wind and solar. The proposed rule also exempts electric generating units that sell less than 10 percent of their electric output to the grid.

Interestingly, the public notice accompanying the proposed rules states that DEP considers the proposed rule to constitute a State Implementation Plan ("SIP") revision because of its effect on electricity demand. More specifically, DEP asserts that the RGGI rules will result in an "as-yet unquantified" reduction in emissions of other air pollutants from power plants, which in turn will assist New Jersey in reaching or maintaining attainment with federal 8-hour ozone and fine particulate standards.

A public hearing on the proposed New Jersey RGGI rule will be held at DEP's offices in Trenton on August 14, 2008. Written comments will be accepted until September 5, 2008.