CATF - Glossary
|Carbon Allocation Task Force
Meeting 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.
An allowance is a 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.
When 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.
The 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 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.
The baseline could remain fixed or it could be adjusted, or updated, periodically. Fixing or updating the baseline is different from the issue of the rate of decline in the cap.
Allowing 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.
The 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.
A circuit breaker is the threshold at which the cost of compliance with the carbon allocation standard is significantly different than expected. When that threshold is reached, there would be a change to the implementation of the cap. For example, if the market price of allowances is too high, the state may sell additional allowances beyond the cap (in effect raising the cap) or it may temporarily halt the annual decline in the cap. Conversely, the state could accelerate the decline in the cap if the market price of allowances is lower than expected.
Distribution of Allowances
Entities 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 Supplier
A 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.
Leakage 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.
The 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 MixTotal 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.
Emission 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. The Western Electricity Coordination Council operates the database.
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.
An entity that generates energy to serve its own electrical load with a generator(s) that has a capacity of 25 megawatts or greater.
Sequestration 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.
Trading 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.
The 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).