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CATF November 10th Agenda & Documents
Meeting Agenda
 
Revised Agenda
Carbon Allocation Task Force
at
Offices of The Energy Trust of Oregon
851 SW Sixth Avenue, Suite 1200
Portland, OR 97204
10:0 AM – 3:00 PM
November 10, 2005
 
 
 
10:00   Review of Agenda                                                       David Stewart-Smith, Chair
 
10:10   Questions Regarding Glossary                                     Phil Carver and Sam Sadler
                                                                                               Oregon Department of Energy
 
10:25   Staff’s “Short Straw Proposal”                                     Phil Carver and Sam Sadler
 
11:30   Discussion of Issues                                                      David Stewart-Smith
 
Noon   Lunch
 
1:00     Continued Discussion of Issues
 
2:45     Schedule for Addressing Issues                                     David Stewart-Smith
 
3:00     Adjourn
 
 

Carbon Allocation Issues for Discussion
 
 
(These are intended to be design and policy questions, as opposed to questions of mechanics – unless mechanical answers raise policy questions.)
  1. How do we select a baseline GHG emissions level for an LSE?  Should the baseline incorporate both emissions and megawatt hours?  Should it be for one year or the average of several years?
 
  1. What’s the shape/slope of the declining cap for LSE’s emissions (e.g., Linear? Front-loaded? Back-loaded?)?  What should be the considerations (e.g., Reliance on embedded technology?  Load growth?) in selecting that shape?  Should the slope vary among LSEs?
 
  1. Should free allowances be issued to LSEs, be auctioned, or both?
 
  1. How should new large single loads be treated?  Should extra allowances be issued to the LSE serving the new large load from the statewide pool, reducing either the amount of allowances that are auctioned or distributed for free to other LSEs?  Alternatively, should allowances be set aside and reserved for this contingency?  If the former, should there be a delay in the adjustment to afford better predictability?
 
  1. How should load switching from one LSE to another (or to self-generation) be treated? 
 
  1. How should load-switching from electricity to gas be treated?
 
  1. Can allowances be carried forward (“banked”)? Can allowances be “borrowed” from future allocations?
 
  1.  Should LSEs have to meet their requirements each year or could they have a multiple-year compliance periods, e.g. 3 or 5-years, to average their emissions? 
 
  1. Under what circumstances should a “safety valve” suspension or freezing of requirements be tripped?  Excessive cost of compliance (what’s “excessive?”)?  Competitive issues with adjacent states?
 
  1. How should RECS (Renewable Energy Certificates) be treated?  These are claims to the environmental attributes of a MWh of generation that are separated (unbundled) from the power.  Should use of unbundled attributes of renewable projects be allowed in order to meet cap requirements?  Any RECS, or only those from within the service territory (State? Power Pool? US?)?  If allowed, should there be limits on the amounts of these that can be used?
 
  1. Should offsets (excluding RECS, which are treated separately), such as direct reduction of fossil fuel use or sequestration, be allowed?  Should there be limits on where offsets could come from?  Who verifies that the offsets are additional and without leakage?  How does an LSE account for offsets? Which types of offsets might be eligible? Should there be a limit on percentage of an LSE’s requirements that can be met by offsets?
 
  1. Is the overall design of OPUC’s current tracking/disclosure process for PGE and PacifiCorp CO2 emissions appropriate for regulating CO2 emissions from all Oregon LSE’s?  If not, what are alternative mechanisms?  If the overall design is appropriate, what adjustments are appropriate?

Glossary ** Draft **
Carbon Allocation Task Force
Glossary
 
The Final approved version of this glossary can be found at http://Oregon.gov/ENERGY/GBLWRM/CATF-Glossary.shtml
 
AdditionalityMeeting an additionality criterion requires demonstrating that it is unlikely that an action would have occurred without the funding for the offset.  The offset project must be in addition to any regulatory requirement, carbon-based or otherwise.  Determining additionality is inherently problematic because it requires resolving a counter-factual question: What would have happened in the absence of funds for an action that results in the offset?  In addition to looking at common practice, it requires a consideration of the barriers that the offset funding helps overcome.  There can be economic and other benefits from a project, but it is necessary to determine that the other benefits alone were not sufficient for the project to happen.
 
Allocation (allowances distributed for free)The allocation is the amount of allowances that the state distributes for free to LSEs, expressed as metric tons of CO2.  LSEs can buy allowances from other LSEs or from the state auction to cover any emissions above their allocations.
 
AllowanceA state-issued certificate that allows an LSE to emit one metric ton of CO2.  The allowances would be serialized and identified by the year they were issued (their vintage).  An LSE would surrender (retire) to the state an allowance for each ton of CO2 it emitted during each year or reporting period.  
 
Banking allowancesWhen an LSE has excess allowances during a specific compliance period, it could hold onto, or “bank,” those excess allowances and use them to meet its allowance requirement for a future compliance period.  There could be a limit on how many years or reporting period that allowances could be banked, e.g. banked allowances might expire after one additional year, three years, etc.
 
BaselineThe baseline determines the starting point for allocating allowances to covered entities.  For a load-based allocation standard, the baseline may be determined by looking at historical emissions or the historical load, or a combination of both.  The baseline would be set based on historical data for a specific year or for an average of several years.
 
Emissions.  Setting an emissions baseline would require determining the total CO2 emissions from the mix of resources that an LSE used to serve its customers during a specific period.  Setting the baseline on emissions alone provides more free allowances to the LSE that has the most carbon intense mix, i.e. the highest level of metric tons of CO2 per megawatt-hour (MWh).  Concurrently, it allocates fewer allowances to those LSEs with low emissions during the baseline period. 
 
Megawatt Hours.  Setting a baseline on megawatt hours of load would allocate allowances based on total megawatt hours that an LSE supplied during the baseline period.  Setting the baseline on megawatt hours rewards past actions to reduce emissions and those LSEs with few or no emissions.  It also provides growth room for those LSEs with no or few historical emissions. 
 
Borrowing allowancesAllowing an LSE to use allowances that it expects to receive in the future to cover current emissions requirements.  That would lower its future allocation by the amount borrowed.  Future allowances that were borrowed might be discounted as well. 
 
CapThe cap sets the maximum quantity of emissions for which the state would annually issue allowances, either for free or at auction.  The cap also identifies the types of sources it covers.
 
Carbon Allocation Standard or Cap-and-trade systemAn allocation standard, or “cap and trade” system, is the name given to a market-based environmental policy designed to limit emissions of carbon dioxide or other greenhouse gases.  Under an allocation standard, a total emission limit or “cap” is established.  The state agency implementing the program creates “emission allowances” in an amount that just equals the cap.  (See “trading.”)
 
Load-based Carbon Allocation Standard.  This is a specific type of a carbon allocation standard.  It sets a cap on total emissions from LSEs that reflects the load of each LSE during a reporting period multiplied by the (fossil) carbon intensity of the generating resources delivered to customers of the LSE or to itself in the case of self-generators.  This is also known as load-based cap-and-trade system.
 
Distribution of AllowancesEntities covered by an allocation standard would be required to hold (or surrender) emission allowances for each reporting period.  There are three options for the state to distribute the allowances:
 
Free Distribution.  The state could distribute all or part of the yearly allowances for free to the LSEs.
 
Auction.  The state could auction all or part of the yearly allowances to the LSEs or to any party that choose to buy them.  Revenues could be directed to specific measures that would also reduce CO2 emissions, such as efficiency measures or renewable resources; the state could recycle the revenues to lower taxes on the affected sectors; or, the state could use the revenues for other purposes.
 
Combined Approach.  The state could issue part of the allowances for free and auction a percentage.
 
Electricity Service SupplierA person or entity that offers to sell electricity services available pursuant to direct access to more than one retail electricity consumer. “Electricity service supplier” does not include an electric utility selling electricity to retail electricity consumers in its own service territory.  ORS 757.600 (16)
 
Large single loads
A new electricity load at a single site with a load of at least 10 average megawatts added in a single calendar year.
 
LeakageLeakage is the extent to which events occurring outside the project boundary lower the net emissions reduction of an offset project.  If reducing emissions from one activity results in emissions increasing at another location or from another activity, then there is leakage.  For example, preserving carbon sequestered in one forest plot may mean that another section of forest is harvested instead; or switching from electricity to natural gas for the same function, such as space heating, may only change the source of emissions.
 
LoadThe amount of electric generation needed to serve retail customers (i.e. MWh).  Load equals sales plus line losses in the transmission and distribution system.
 
Load serving entity (LSE)An LSE is an investor-owned or consumer-owned Oregon electric utility; an entity that serves all or part of its own electricity load by operating a generator of 25 megawatts or greater (a self-generator); or a retail “electricity service supplier.”  LSEs would be required to hold emission allowances for electricity they deliver to their customers or themselves.  The emission allowances must be sufficient to cover the emissions from the electric generators that produced the electricity that LSE delivered to customers or to itself.
 
Net System Mix
Total system mix is the fuel mix and emission intensity, measured as metric tons of CO2 per MWh, of the power generated in the West or a subregion of the West, e.g. the U.S. portion of the NW Power Pool.  Net system mix equals the emissions of the total system mix less the emissions of the mix of resources that Oregon and Washington assign to specific retail loads. 
 
OffsetEmission offsets refer to verified emission reductions achieved by entities that are outside the cap and trade program.  Offsets are presumed to reduce the level of greenhouse gases in the atmosphere.  Offsets can help an LSE comply with the requirement to surrender emission allowances to cover its emissions.  Offsets may reduce the cost of complying with a cap-and-trade system.
 
To be credited with an offset that is the equivalent to an allowance, it must be demonstrated that an offset project would not otherwise occur without the funding provided by the offset purchaser (additionality) and that the results are rigorously quantified and verified.  To measure the amount of greenhouse gases offset, a baseline projection of emissions without the offset project must be developed, and then actual emissions must be measured.  The difference between the actual and the projected baseline emissions is the offset.  A third party with no financial interest in the project must verify the approach and calculations used to quantify the results.  Examples of offsets included increasing energy efficiency in buildings, industrial processes, or transportation; generating electricity from renewables such as wind or solar; modifying a power plant or factory to use fuels that emit fewer greenhouse gases; putting wasted energy to work via cogeneration; and, capturing carbon dioxide in forests and agricultural soils or mechanically sequestering it underground.
 
Renewable Energy Certificates (REC) or “tags”A REC is a claim to the environmental attributes of a MWh of generation that is separated (unbundled) from the power.  It can be sold separately from the power. Estimates of carbon dioxide emissions offset by tags would be based on assumptions about the power that is displaced by the generation associated with the tag.  The power that has had tags removed is assigned the CO2 intensity (metric tons/MWh) of the net system mix.  (When tags are bundled with the power, the tags are included when calculating an LSE’s emissions.) 
 
While carbon dioxide avoidance is one aspect of a tag, tags also have other environmental aspects, all of which are included in the REC.  The Western Renewable Energy Generation Information System (WREGIS) is establishing a database to track the ownership of RECs in the West.  It is operated by the Western Electricity Coordination Council.
 
Renewable Portfolio Standard (RPS)An RPS would require an LSE to obtain a minimum percentage of its electricity from renewable energy resources to serve its loads.  This may or may not apply self-generators.  An RPS may specify the location (e.g. from within the state) of the renewable energy resources that can be used to meet the standard or specific types of renewable sources (e.g. wind, solar, etc).  An RPS may require that the renewable resources provide both power and environmental attributes that are bundled together or it may allow suppliers to purchase renewable energy certificates or tags for compliance with the standard.
 
Safety valve or Circuit BreakerA safety valve or circuit breaker is the threshold at which the cost of compliance with the carbon allocation standard exceeds a certain amount.  When that threshold is reached, there is a change to the enforcement of the cap.  For example, the state may sell additional allowances beyond the cap (in effect raising the cap) and it may temporarily halt the annual decline in the cap.  Conversely, the state could accelerate the decline in the distribution of allowances it issues if the allowance price is lower than expected.
 
Self-generatorAn entity that generates energy to serve its own electrical load with a generator(s) that has a capacity of 25 megawatts or greater.
 
SequestrationSequestration is the temporary or permanent storage of carbon from the atmosphere in biological or geological media.  Biological sequestration may include actions such as afforestation, reforestation, increased carbon storage in agricultural soils, and storage in wood products.  Much biological sequestration is climate dependent. 
 
Geological sequestration includes underground storage of carbon dioxide.  Unlike biological sequestration, which is the natural uptake of carbon dioxide from the atmosphere, geological sequestration includes the mechanical capture of carbon dioxide from exhaust gases from combustion of fossil fuels, from CO2 released by natural gas or oil wells, or from CO2 released from industrial processes.
 
TradingTrading is when entities sell and purchase emission allowances in bilateral transactions.  A covered entity can buy allowances rather than reduce its own emissions.  In this case, another entity must reduce its emissions enough so that it has extra allowances to sell.  This opportunity to purchase and sell emission allowances is the “trade” portion of the “cap and trade” program. 
 
The state would track transfers of ownership of serialize allowances.  For offsets, trading may occur, but it would be independent of the state tracking system.  An offset comes into the state system only when an LSE surrenders it for a reporting period.
 
VintageThe year in which the state issued an allowance or in which a verified offset occurred. It can also refer to the year a generating plant began operating pursuant to SB 1149 (1999).

Short Straw Proposal for a Carbon Allocation Standard
Prepared by Phil Carver and Sam Sadler, Oregon Department of Energy,
in consultation with the Straw Proposal Sub-Committee
 
October 28, 2005
 
At the recommendation of the Governor’s Advisory Group on Global Warming, Governor Ted Kulongoski has adopted a goal for Oregon to arrest the growth of greenhouse gas emissions by 2010, to reduce the greenhouse gas emissions to 10 percent below 1990 levels by 2020, and to reduce them to levels 75 percent below 1990 emissions by 2050.
 
This paper describes one way to set a limit on the total carbon dioxide (CO2) emissions associated with the use of electricity to help the state achieve its greenhouse gas reduction goals. Separate papers will address limiting the direct use of natural gas and petroleum products.
Setting limits on CO2 emissions based on the use of electricity is known as a "load-based" carbon allocation standard. "Load-based" in this context means limiting the emissions of investor-owned and publicly-owned distribution electric companies or other retail providers and larger self-generators. These are called "load serving entities" (LSE).
 
The state would select a baseline for setting the initial limit. That baseline would be historical data of CO2 emissions and electricity use, such as data from one year between 2001 and 2005 or the average of those years. The first baseline for the entire state would probably be about 25 to 30 million metric tons of CO2 emissions. The limit would decline over time. The 2020 limit would be about 19 million tons and the 2050 limit would be about 5 million tons.
 
The state would limit the CO2 emissions that an LSE could emit. The computation of emissions would be the load (megawatt hours (MWh)) times the carbon mix of the electricity supplying that load. That would give metric tons of CO2 emissions. The initial limit for an LSE would be determined by a formula that accounts for its CO2 emissions and MWh for the historical period.
The state would issue serialized allowances. Each allowance would have a unique identification and year. One allowance would represent one metric ton of CO2.
 
There would be two types of allowances: free allowances and auctioned allowances. The state would issue 95 percent of the total allowances each year to the LSEs for free. The state would auction 5 percent of the total allowances each year. The proceeds from the auction would go to the Energy Trust of Oregon or a similar organization to support energy efficiency programs and renewable resources that have long-lead times or market barriers, are not commercially ready for mass deployment, or are not covered by other programs.
 
For the free allowances, the state would apportion 95 percent of those allowances each year to the LSEs based on their CO2 emissions. The state would apportion the other 5 percent of free allowances for the LSEs based on the MWhs of the LSEs’ loads.
 
For the first four years the total number of allowances would be equal to the initial baseline. Starting in year five, the total number of allowances would begin to decline so that the total emissions from the electricity sector would be 10 percent below 1990 levels by 2020. Each LSE would face a proportional decline in the number of free allowances it received. The number of auctioned allowances would decline in the same manner. Eventually, the allocation would be reduced on a predictable curve through 2050 to help achieve the greenhouse gas emissions reduction goals the Governor has set.
 
The LSE would be required to surrender allowances (or offsets, as described below) to the state to cover its share of emissions from all generation sources serving its customers. Emissions from imported power would be tracked and counted just like emissions from generators in the state.
The state would issue allowances, either free or auctioned, each year. However, in order to provide flexibility and to smooth out the effects of unusual circumstances, the LSEs would only have to surrender allowances to comply with their limit every three years. In effect, they could average their emissions over the three-year period. An LSE could save, or "bank," allowances that it did not need to meet its requirements in one three year period and use them to meet its requirements in a subsequent three-year period. However, an LSE could not "borrow" allowances from the future.
 
In addition, an LSE could sell allowances it did not need to other LSEs, which could then use them to meet their requirements. An LSE could not sell "future" allowances, ones that the state had not yet issued, however.
 
There would be provisions for adjusting the allowance allocation if a major customer shifted its load to another LSE or a self-generating LSE moved on or off the load of a utility. There would also be provisions for adjusting the allocations for an LSE serving a new single customer large load (greater than 10 aMW) in any year.
 
It will be necessary to track CO2 emissions from utility loads and to track serialized allowances as they are distributed and surrendered. The CO2 emissions tracking system would be consistent with the current emissions reports provided to retail customers of PacifiCorp and PGE pursuant to the Oregon Public Utility Commission’s rule. For market purchases that do not come from identified generating units the tracking system would assign the CO2 emissions rate for the regional net system power mix.
 
If an LSE failed to surrender sufficient allowances (and offsets) to meet its requirements, there would be a fee paid to the state of $40 metric ton of CO2 in excess. These funds would be used to reduce Oregon emissions in the same ways as the funds from the auctioned allowances. If the excess aggregate emissions of all LSEs entities exceeded the total state CO2 emissions issued during the period, plus all banked allowances carried into the period, by more than 10 percent in any one reporting period, the state could suspend the decline in allocations for the next three-year reporting period. The total amount of allowances issued could be the same for the next three years as it was for the last three years.
 
In addition to the surrendering state-issued allowances to meet emission requirements, an LSE could surrender a limited number of offsets. Offsets are credits for reductions from outside the electrical sector, and as proposed below, from outside the state. Offsets could not exceed 1 percent of an LSE’s annual limit. Eligibility for offsets would be narrowly defined as to additionality, type, source, and vintage. The tracking system would establish a protocol to quantify, verify, register, and retire those offsets. Alternatively, the state could recognized an independent qualified entity, such as The Climate Trust, to quantify, verify and monitor offsets that would be eligible for purchase by an LSE to meet their requirements.
 
Offsets should not be allowed from within the state because there are no reductions in excess of those needed to meet the state goals. In addition, creating offsets creates an expectation among those selling offsets that they should not later fall under an allocation system that would limit their own emissions. Therefore, allowing offsets from within the state would make it difficult to expand the allocation standard to other sectors. The state could recognize as offsets the allowances from the European Union’s Emission Trading Scheme, offsets approved through the Clean Development Mechanism (CDM) under the Kyoto Protocol, and allowances issued under the East Coast Regional Greenhouse Gas Initiative (RGGI) when it is established.
 
A renewable portfolio standard (RPS) could be included as a refinement of the methods for meeting the cap, but there is a danger that the RPS could also become a de facto ceiling for the extent of utilities’ reliance on renewables. One alternative would be to have a targeted RPS for renewable resources that are relatively expensive or that have a long lead time. This targeted level might accomplished with assistance from the Energy Trust. Work on an RPS within the carbon allocation standard should be coordinated with recommendations in the Renewable Energy Action Plan and the Renewable Energy Working Group.
 
There is additional information about the Carbon Allocation Task Force at

http://egov.oregon.gov/ENERGY/GBLWRM/CATF.shtml
 

Send comments to:
Sam Sadler                                              Phil Carver
503.373.1034                                          503.378.6874

samuel.r.sadler@state.or.us                    philip.h.carver@state.or.us
       

Oregon Department of Energy
625 NE Marion Street
Salem, Oregon 97301-3737
Fax: 503.373.7806
800.221.8035 (in Oregon)

Decision Steps to Develop A Carbon Allocation Standard **Draft**
Staff proposes that the Task Force establish a schedule for addressing the following broad issue areas in the order presented.
  1. Confirm that the initial covered sector is electricity load serving entities (LSE)

  2. Determine initial sector cap and rate of decline to 2020 and 2050

  3. Determine LSE baselines in the state cap

  4. Determine how to distribute allowances (free and auctioned)

  5. Define circuit breaker or adjustments of cap trajectory

  6. Determine role, if any, of banking and borrowing

  7. Determine how to account for new large single customers of LSEs

  8. Determine possible roles for a Renewable Portfolio Standard

  9. Determine structure and process for tracking compliance of LSEs, including allowance trading

  10. Roll-out from LSEs to other fossil fuel end users and other greenhouse gases

  11. Determine role of offsets