OREANDA-NEWS. Regional Greenhouse Gas Initiative (RGGI) states need to make three key changes to the program to ensure it can be used to meet the US Environmental Protection Agency's (EPA) proposed greenhouse gas rules for existing power plants, according to a report.

Among the changes RGGI should adopt is a fixed decline in the emissions cap of about 2.275 short tons/yr, rather than the 2.5pc/yr reduction now in place, Boston-based environmental policy think tank Acadia Center said in the report released yesterday. At the same time, the nine-state power sector trading program should extend the cap out until 2030, aligning the program with the deadline for states to meet CO2 emissions rates set out by EPA in its Clean Power Plan, the report said.

The result would be a 2030 allowance budget of about 54.6mn st, down from 60.7mn under the current 2.5pc/yr trajectory, barring the entry of new states.

The current Argus assessement for spot market allowances is \$5.51/st, with December-delivery allowances at \$5.57/t.

The report recommends that RGGI do away with its cost-containment reserve (CCR) during the the next program review, scheduled for 2016. The reserve totals 10mn st this year and is made available when the clearing price at program auctions reaches a certain level, which for this year is \$6/st. If the states want to keep the CCR, it should be drawn from the annual emissions cap instead of from a supplemental pool of allowances, according to the report.

"The CCR adds an extra wrinkle into demonstrating compliance with the Clean Power Plan," Acadia policy analyst Jordan Stutt told Argus. "Changing the reserve would avoid minting new allowances when the trigger is met."

Adopting these changes would make it easier for RGGI to attract new member states by making the program more consistent with the Clean Power Plan. EPA says it will allow states to convert the plan's rate-based targets into mass-based ones to facilitate emissions trading. EPA says it will finalize the regulations this summer, with states expected to submit compliance plans around mid-2016. The likelihood that states will pursue regional trading depends on how the EPA addresses concerns behind quantifying emissions cuts among states.

"States want the least-coast approach, and we think that approach is regional, mass-based trading," Stutt said. EPA, therefore, should present "clear guidelines on what it take to set up a cap and trade program, and clarity type of trading that meets the standard."