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RGGI states work to balance proposed changes with regional market dynamics

Officialsfrom the Regional Greenhouse Gas Initiative participating states, includingMaine, are actively working toward integrating proposed changes to thecap-and-trade program with potentially changing power market dynamics in theregion.

"Weare having constructive conversations with the other [RGGI] states,"Patrick Woodcock, director of the Maine State Energy Office, told S&PGlobal Market Intelligence.

Woodcockpointed to several moving parts, including potential impacts from the currentClean Power Plan court case, as well as ongoing New England power marketreforms.

"We[have been] encouraging a methodical review of these other policy changes inconjunction with the RGGI review. That has been the message from the state ofMaine. We have had a collaborative working relationship with the other [RGGI]states and hope that continues," Woodcock added.

RGGIis made up of Connecticut, Delaware, Maine, Massachusetts, Maryland, NewHampshire, New York, Rhode Island and Vermont. The participating states use amarket-based, cap-and-trade program to reduce greenhouse gas emissions fromregional power plants, selling nearly all emissions allowances through auctionsand investing proceeds in energy efficiency projects in the residential,commercial and municipal sectors.

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Officialsin Maine are "engaged and intimately involved" with the ongoing RGGIreview process, Harry Lanphear, a spokesman from the Maine Public UtilitiesCommission, told S&P Global Market Intelligence.

Thusfar, the 2016 RGGI review has focused on several factors, one of which includesaccounting for implementation of the U.S. EPA's Clean Power Plan. The rulewould require states to meet individual carbon emissions rate limits atexisting power plants beginning in 2022. More than half of U.S. states andseveral power industry groups filed suit in the D.C. Circuit to overturn therule, but a coalition of 18 states and many environmental organizations filedpetitions to intervene in the case on the EPA's behalf. The U.S. Supreme Courtstayed the rule in February until all legal challenges are wrapped up.

Inlight of the climate goals that would be set forth by the Clean Power Plan,discussions within RGGI have centered on the use of a stricter programemissions cap of 5%.

Aftera comprehensive review in 2013, and in an attempt to bring the RGGI cap in linewith actual emissions levels, the participating states in 2014 trimmed theceiling by 45%, to 91 million tons. The RGGI emissions cap declines 2.5% eachyear thereafter through 2020. The 2016 RGGI cap is 86.5 million tons.

Nonetheless,concerns remain that the tighter emissions ceiling of 5% could cause potentialharm to the economies of some RGGI member states and could raise regional powerprices.

"There'scertainly an ongoing conversation about how ambitious Maine and the otherstates would like the program to be, but I don't believe there is any realconcern as to whether they will be participants going forward," JordanStutt, policy analyst with Acadia Center, said in an email.

Althoughone of the smaller RGGI member states, since RGGI's inception in 2008, Mainehas netted a total of $81.8 million from the 33 RGGI auctions that have beenheld to date. The funds have been used to finance rate relief, energyefficiency and renewable energy projects in the state.

In2015, two-thirds of Maine's net electricity generation was from renewableenergy — 30% from hydroelectricity, 26% from biomass and 10% from wind, accordingto the U.S. Energy Information Administration.

Dueto the state's widespread use of heating oil for home heating, Mainepredominantly consumes petroleum. However, the state does not produce or refinepetroleum. With its limited use of coal and petroleum for electricity, Maine isamong one of the 10 states with the lowest carbon emissions. Additionally, Mainehad the lowest average electricity retail prices in New England at the end of2015, the EIA said.

Asthe ongoing RGGI program review heads into the final months of the year, theCollaborative for RGGI Progress, which includes the Acadia Center, , , and the NaturalResources Defense Council, recently submitted comments and recommendations toRGGI outlining that the RGGI program reduction trajectory should continuethrough 2030 in order to comply with the Clean Power Plan.

"RGGIhas modeled a 5% reduction region-wide, which would go a long way towardmeeting the 80% by 2050 goals. The group could endorse such a target if thecustomer bill impacts and electric system reliability implications wereprojected to be reasonable," the group said in its comments.

Additionally,RGGI could continue to implement a limited cost-containment reserve, but itshould be limited in size so the reduction each year is no less than 2.5%.

"Theprice trigger for the CCR should be set high enough above expected allowanceprices in order to avoid distorting bidding behavior and avoid releasingadditional allowances under normal market conditions," the collaborativenoted.

"Priorto the next program review in 2020, RGGI should evaluate the need to adjust forthe private bank of allowances existing as of Dec. 31, 2020, by reducing theannual caps over time to account for the bank, similar to the method used inthe 2012 review. Implementation of any adjustment should commence after2020," the group said.