FAQ about Carbon Offsets and Renewable Energy Certificates

Welcome to the FAQ

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What is RGGI?

The Regional Greenhouse Gas Initiative (RGGI) is a carbon cap and trade system. RGGI regulates the amount of CO2 the power plants in the Northeast United States are allowed to emit. RGGI reduces emissions by requiring power plants to hold a permit for each ton of CO2 they emit. Over time regulators reduce the number of permits available, thereby tightening the cap. The RRGI system has become a model for other states and regions who have implemented Greenhouse Gas regulatory schemes and is important to understanding how these regulatory schemes work.

For more information on RGGI, please go to http://www.rggi.org/home.
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How does my voluntary purchase of a RGGI permit offset my carbon emissions and make me carbon neutral?

FFRT enables individuals and businesses to purchase permits from the RGGI market, essentially tightening the cap and forcing power plants to cut emissions further. Because the number of permits is directly linked to total emissions, a customer's purchase of one permit guarantees the reduction of a ton of carbon dioxide.
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How is this different from other carbon offsets?

Most carbon offsets enable you to pay a company to do something to reduce carbon dioxide emissions. Many of these projects have faced skepticism about whether the projects would have occurred without these extra funds. There is also generally a lack of transparency about how much money actually goes to reducing greenhouse gas emissions and concerns that some offsets are "double counted." Furthermore most offsets reduce carbon emissions from places like landfills and cattle ranches, which make up only 3% of U.S. greenhouse gas emissions, rather than reducing carbon emissions from power plants.

By contrast, RGGI permits are fully regulated by a system set up by 10 state governments. They are tracked through an online accounting system run by RGGI regulators where each permit has a unique serial number, which verifies that permits were not double-counted. In addition, FFRT provides its business customers with the option of transparent pricing, ensuring that 90% of the money goes towards the reduction of carbon dioxide emissions.

Lastly, because RGGI regulated power plants, a voluntary purchase of RGGI permits forces carbon reductions in the electric power sector, the main source of greenhouse gas emissions in the Unite States. As the power plants are forced to cut emissions they will invest in energy efficiency and renewable energy, helping to address the main cause of global warming.
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Which states are participating in RGGI?

Ten Northeastern and Mid-Atlantic States: Connecticut, Delaware, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont.
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Why is it limited to the Northeast?

Many states have decided to take action to reduce regional CO2 emissions because the federal government has not taken any action and has refused to join the Kyoto Protocol. RGGI is the attempt by 10 Northeast and Mid-Atlantic States to reduce their regional CO2 emissions. California expects to launch its own similar program beginning in 2012.
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Which industries are required to reduce carbon dioxide emissions?

RGGI applies to fossil fuel-fired electric generating units serving a generator of 25 MW or larger.
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How many tons of CO2 are permitted in the RGGI market?

The initial cap is set at 188,076,976 tons of CO2 per year, for the years 2009-2014. This cap level is equal to 4% above the annual average regional emissions during the period 2000-2004. In the second phase of RGGI, years 2015-2018, the cap will decline by 2.5% per year. This will result in a 2018 annual emissions budget that is 10% smaller than the initial 2009 annual emissions budget, and 6.5% smaller than the 2004 annual emissions budget.



Year

2009-2014

2015

2016

2017

2018

Regional Annual CO2 Emissions Budget (short tons)

188,076,976

183,375,052

178,673,127

173,971,203

169,269,278


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We have heard that the RGGI market is oversupplied with CO2 permits this year. Does this mean that a voluntary purchase won't actually reduce carbon emissions?

No it does not. Even if the RGGI market is oversupplied with CO2 permits your voluntary purchase will still reduce carbon emissions. The reason is a crucial rule within RGGI that allows for the "banking" of permits. It means that if there are leftover permits one year, power plants can save or "bank" these permits and use them in a later year.

If permits are banked, power plants are able to use old permits to emit an extra ton of CO2 in a later year. If a voluntary purchaser had removed these permits from the market, power plants would be forced to reduce emissions. The "banking" rule adds price stability to the market, and ensures your purchase forces a reduction in carbon dioxide emissions. The flowchart below walks through this question.
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How are the RGGI permits tracked?

The RGGI permits are tracked through the RGGI CO2 Allowance Tracking System (RGGI COATS), which is a transparent electronic system for tracking permits under the RGGI CO2 Budget Trading Programs. Each RGGI permit has a unique serial number and therefore cannot be double counted. For more information please go to http://rggi-coats.org/.
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How is it possible to buy the permits away from the power plants?

The permits can be bought and sold by any entity that is registered with RGGI. Power plants must buy the permits in order to comply with the cap, or they can sell extra permits if they have reduced emissions enough to meet the compliance level.

There are a number of non power plant purchasers in this market including speculators, hedge funds, and environmental organizations like FFRT.
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With that much at stake for the power plants, could they or their lobbyists end up holding this up at all?

The RGGI law is now on the books - the major concern that lobbyists would block RGGI has basically already passed since the law is now in place.

There are steep penalties for power plants that emit carbon dioxide without a permit - so power plants are unlikely to ignore the requirement to purchase these permits.
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How does this compare with the initiatives in AB32, or is this a direct connection?

The initiatives in AB32 are similar. The goal of both AB32 and the RGGI Program are to reduce regional CO2 emissions over time. AB32 is California's attempt to do this, and it will create a similar carbon cap-and-trade market, called the Western Climate Initiative (WCI), that will begin in 2012. The WCI will be the largest regional carbon market in the US, and will cover emissions from Arizona, British Columbia, California, Manitoba, Montana, New Mexico, Ontario, Oregon, Quebec, Utah, and Washington.

It is expected that the next administration will implement a federal carbon cap-and-trade program. The existing regional programs are expected to connect and feed into the federal program.
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Is there a risk that purchasing RGGI permits is going to cause electricity prices to skyrocket in these ten states?

Not really. Even if our methodology is exceedingly successful and causes a five-fold increase in the price of a RGGI carbon permit (to $20/ton), electricity rates would likely only increase $0.01/kWh if all the costs were passed on to the consumer.

Here is the calculation: the carbon intensity of the electricity grid in the Northeast is approximately half a ton of carbon dioxide per Megawatt-hour. This is equivalent to one pound of carbon dioxide per kilowatt-hour. Consumers usually pay $0.10 - $0.15 per kWh.

To increase the price of electricity by a modest $0.01/kWh the price of carbon dioxide would have to be:

($0.01/kWh) * (1 kWh/1 pound CO2) * (2,000 pounds/ton) = $20/ton.

If the program is wildly successful and prices really skyrocket, of course FFRT will stop selling these permits, rather than needlessly penalizing electricity customers in these states.
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