O ct o b e r, 2 0 0 7

1 **Ov er** **v ie**  **w o f**  **RGGI CO**  **2 Bu**  **d g**  **et T**  **r ad**  **in g**  **Pr o**  **g r** **am**

T he CO 2 B ud ge t T r ad i ng Prog r am i s ba se d o n th e M od e l Ru l e, w hi ch w as de velo pe d to provid e gu i d an ce a nd con s i ste n cy to sta tes t ha t s i gn e d t he RG GI M e m or an du m o f Un de r stan d i ng ( M OU) as th e y i m pl em en t th e p r og r am de tail ed i n t he M OU 1 .  T he M OU sta t es th at “ E ach of

t h e Si gn a tory State scom m i ts to pr op ose th e P r og r am sub stan tiall y as r eflecte d i n th e M od e l Ru l e ”

.2 T he M od e l Rul e p r ov i de s s ta te s fl ex i b ili ty i n ad op t ing pro vi s i on s r eg a r d i ng a pp li cab ili ty a nd

sou r ce ex em pt i on s, a ll ow an ce a l loca t i on s an d all ow an ce se t

­ as i de s, a nd pe r m i tti n g. W ith th e e x cep ti o n o f th ese po rt i o ns o f th e M od e l Ru l e w he r e st ate s
ar e p rovide d w i th discr et i on , th e a pp li cab l e r e gu l a tory a ge nc i es i n the reg i on i nte nd to pr op os e r u l esth at a r e m ate r i a ll y con si sten t w i th the M od e l Ru le. T hi s
con si st en cy i s r e qu i r e d t o p r ov i de fo r pa rt i c i pa ti on in a reg i on a l a ll ow an ce t rad i ng pr og r am

.

T he i n i t i a l te m pl at e fo r t he M od e l Ru l e w as b a sed on EP A ’s P art 9 6 r u le3

, w hi ch was use d as th e st a rt i ng po i nt fo r

p rovi s i on s ad dressin g t he ba s i c ad m i ni str a ti v e fu nct i o n i ng of the cap

­ an d

­ tr a d e pr og r am ( e. g. , p r oce ssfo r esta b l i s h i ng a u th or i ze d a ccou nt r e pr ese n tat i v es, com pl i an c e ce rt i fi ca tion

, all ow an ce tr ack ing syste m , a nd a l low an ce t r a nsfe rs)

.

T he M od e l Ru l e w as de ve l op e d by th e RGG I S taf

f W o r k i ng G r ou p,
com pr i sed o f st af f m e m be rs fr o m th e e nvir on m en tal an d e ne r gy reg u l ato ry ag en c i es i n e ach s i gn at ory sta te. T h i s ef

fo rt w as su pp or ted by an exten si v e
r eg i on a l st ake ho l de r p roce ss th a t e ng a ge d t h e r eg u l at ed com m un i ty,

en viro nm en ta l n o n­ p r ofi ts, a nd ot h er o r ga n i zat i on s w i th te chn i ca l ex pe rti s e i n t he de si g n of ca p­ an d­ trad e p r og ram s.

1 T h e M O U wa s s i g n e d b y t h e G ov e rn o rs o f t h e p a r

t i c i p a t i n g s t a t e s a n d o u t l i n e s t h e p ro g ra m i n d e t a i l

, i n c l u d i n g t h e f ra m e wo rk f o r a Mo d e l R u l e

. T h e s t a t e s m a d e s u b s t a n t i a l rev i s i o n s t o t h e d ra f t m o d e l ru l e i n re s p o n s e t o p u b l i c co mme n t s

. As a r

e s u l t

, a n a m e n d m e n t t o t h e MO U wa s
a g re e d t o a n d s i g n e d b y t h e h e a d s o f t h e e n e rg y re g u l a t o ry a n d e n v i ro n m e n t a l a g e n c i e s i n e a ch p a rt i c i p a t i n g s t a t e

. T h e M O U a n d a m e n d m e n t s a re av a i l a b l e a t h t t p : / /w ww

. rg g i

. o rg / a g re e m e n t

. h t m

. 2 T h e R G G I Mo d e l R u l e d o e s n o t s u p p l a n t a n y s t a t e re g u l a t o ry o r l e g i s l a t i v e ef

fo rt s , b u t i n s t e a d f a c i l i t a t e s t h e m b y i n cl u d i n g t h e t yp e s of p rov i s i o n s n e ce ss a ry t o i m p l e m e n t R G G I

. T h e R G G I Mo d e l R u l e d o e s s o i n a wa y t h a t p re s e r

v e s s t a t e s ov e re i g n t y a n d p rov i d e s ce rt a i n t y a n d

co n s i s t e n cy t o t h e re g u l a t e d co mm u n i t y a n d t o t h e p u b l i c. T h e Mo d e l R u l e i s av a i l a b l e a t h t t p : / /w ww

. rg g i

. o rg / m o d e l ru l e

. h t m

. 3 4 0 C F R Pa rt 9 6

– N O X Bu d g e t T ra d i n g Pro g ra m a n d CAI R

, N O X , a n d SO 2 T ra d i n g Pro g ra m s f o r St a t e I m p l e m e n t a t i o n P l a n s

. Se e h t t p : / /w ww

. a cce ss

. g p o

. g o v / n a ra / c f r/wa i s i d x

_0 6 /4 0 c f r9 6

_0 6

. h t ml

.O ct o b e r, 2 0 0 7

2 T he m aj or co m po ne nt s of th e CO 2 B ud ge t T r a di ng Pro gram , a s ou tli ne d in the M em or an du m o f Und er stan d i n g a nd t he M od el Ru l e, a r e d i scusse d b e l ow

.

A pp li cab ili ty

T he a p pli c ab il ity cr i te r ia e stab li sh ed by t he M od el Ru le r eq u i r e fos sil fue l

fi red e l ect r i c g en e r at i ng un i ts se rving a g en erato r

of 25 M W o r l ar g er to com pl y

w i th th e CO 2 B ud ge t T r ad i n g P r og ram .  O nce a un i t tr i g ge rs a pp li cab ili ty u nd er the CO 2 B ud ge t T r ad i ng Prog r am ( a CO 2 bu d ge t u n i t)

, th at un i t w il l r em ai n subj ectto th e pr o gr am , r eg ar d l essof cha ng esto th e u nit. Reg i o na ll y, u n i ts o f thi s s i ze a r e r esp o nsib l e for ap p r ox i m ate l y 95 % of CO 2 e m i ssi on sfr om th e el ect r i c g en er at i on se ctor

.

T he d efinition o f “ fo ss il fu e l­fi r ed ” var ies d ep e nd i n g o n w he n a u nit

com m en ces o pe r at i on . A u nit t ha t c om m en ces o pe r at i o n o n o r

af t er Jan ua ry 1

, 20 05 i s co ns i d er ed fo ss il fu e l

­ fir ed p r ov i de d th atfo ss il fu e l com pr i ses m or e t ha n 5% of i ts to ta l a n nu a l h e at i np ut . A un i t th a t co m m en ced op er at i on p r i or

to Jan ua ry 1 , 2 00 5 i sco ns i de r ed to be fo ss il fue l­f ire d i f f

oss i l fue l com pr i ses m or e tha n 5 0% of i ts to ta l a n nu a l he at i np ut

.

CO 2 e m i ssi on s at tr i bu ta b l e to t he com bu sti o n of e l igib l e b i om ass a t a CO 2 bu dg etu nit ca n b e de d ucte d fr om th at un i t’s C O 2 co m pl i a nce o b li g at i on .  E li g i b l e bi om ass i nc l ud es sust a i na b l y ha rv este d w oo d y an d h e r ba ceo us f ue l so ur ces t ha t

ar e a va il ab le o n a r en ew ab l e o r r ecu r r i ng ba s is ( ex cl ud i ng old­ g r owth ti m be r )

, i nc l ud i n g d ed i ca te d en er gy c r op s a nd tree s, a gr i c u l tur a l foo d a nd fe e d cr op
r esidu es, a qu at i c p l a nt s, u n ad u l te r ate d w oo d an d w oo d r es i du es, an i m al w aste s, oth er c l ea n o rga n i c waste s no t m i xed w i th oth er

so li d w aste s, b i og as, an d o t he r
ne at li qu i d b i o fu e l s d e r i ved fr om such fu el so u r ces. Dete r m i na ti o ns a s to w ha t

con stitu te s su st a i na b l y h arveste d b i om ass sh all be m ad e b y th e a pp li cab l e
r eg u l at o ry a ge ncie s i n ea c h p ar ti c ipa t i ng st ate

.

S i ze a nd Stru ctu r e of Ca p

T he RGGI M OU ca ll s fo r s i gn ato ry sta t es t o st ab ili ze po wer sect or CO 2 em i ssi on s o ve r th e firsts i x yea r s of p r og ram i m pl e m en tat i on ( 20 09

­ 20 14 ) a t a l eve l r ou gh l y eq ua l to cur r en t e m i ss i on s

4 , b efo re i n i t i a ting a n e m i ssi on s de c li ne of 2.5 % p er ye a r fo r th e f ou r ye ar s 20 15 th r ou gh 20 18

. T h i s ap p r oa ch w i ll r esu l t i n a 2 01 8 a nn ua l e m i ss i on s bu dg et t ha t i s 10 % s m al l er

th an th e initia l 20 09 an nu a l

em i ssi on s b ud ge t. T he firstth ree

­ ye ar

com plian ce p er iod wou l d be g i n Ja nu ary 1, 20 09

.

T h i s p ha se d ap p r oa ch w i t h i n i t i a ll y m od est e m i ss i on s r ed uct i o ns i s i nte n de d to pr ov i de m ar ketsi gn a l s an d reg u l ato ry cer

ta i nty s o t ha t elect r i c i ty g en er a tor s be gin p l an n ing fo r , a nd inve st i ng i n, low er

­ car bo n a l ter na t i ves t h r ou g ho ut t he

4 T h e i n i t i a l re g i o n a l ca p i s 1 8 8 m i l l i o n s h o rt t o n s o f C O 2 p e r ye a r, w h i ch i s a p p ro xi m a t e l y 4 %

a b ov e a n n u a l av e ra g e re g i o n a l e mi s s i o n s d u ri n g t h e p e ri o d 2 0 0 0 ­2 0 0 4

.O ct o b e r, 2 0 0 7

3 r eg i on , b utw i th ou t cr ea t ing dram ati c w ho l esa le e lectr i c i ty p r i ce i m pa cts a nd att en da n t r et a il ele ctr i c i ty rat e i m pa cts. T he R GGI M OU ap po rt i on sCO 2 all ow an ces a m on g si gn ato ry st ate s th r ou gh a pr oce ss th at was b ase d o n hi sto r i ca l e m i ssi o ns an d ne go t i a tion am on g t he si g na tory

sta tes. T og eth er , th e
em i ssi on s b ud ge ts o f ea ch s i gn ato ry s tat e co m pr i se t he r eg iona l e m i ssion s bu dg et

, or RGGI “ cap

. ”

Y ea r Regio na l Annu a l CO 2 E m i ssi on s Bud ge t ( s ho rt to ns)

20 09

­ 2 01 4 18 8,0 76

, 97 6 20 15 18 3,3 75

, 05 2 20 16 17 8,6 73

, 12 7 20 17 17 3,9 71

, 20 3 20 18 16 9,2 69

, 27 8

P er m i tti ng

It i san t i c i pa t ed th at th e p r op os al sin p a rti c i p at i ng sta tes m ay r eq uir e e ac h CO 2 bu dg etso u r ce to h ave an ap prove d CO 2 bu dg ete m i ss i on m on i tor i n g p l an ( E M P ) . T he se pe r m i tti ng pr ov i s i on s wou l d b e de velop ed by t he ap p li cab l e

r eg u l at o ry a ge ncy i n ea c h p art i c i p at i ng sta te in a ccor da nce w i th i ts p er m i tting

r eg u l at i on s

. T h e an t i c i pa ted po ten t i a l sco pe o f su ch st ate

­ spe c i fi c p r ov i s i on s i s
ou tli n ed b e l ow

.

T he p u r po se o f t he CO 2 bu dg etEM P i s to d efi ne CO 2 em i ssi o ns an d ne t

en er gy o ut pu t m on i to r i ng p r oce du r es fo r

a p ar ti cu l a r CO 2 bu dg et so ur ce

. A pp li cab l e r eg u l a to ry a ge nc i es co u l d p rop ose to a l low

CO 2 bu dg etso ur ces th at

ar e su bj ectto th e Aci d R ain Prog r am to sub m i t a s pa rt of the ir CO 2 bu dg et

EM P a st ate m en t t ha t t he y a lre ad y ha ve a n em i ssi o ns m on i tor i ng p l an in p l ace tha t

m ee ts t he r eq uir em en ts o f th e CO 2 B ud ge t Prog r am

. CO 2 bu dg etso ur ces th at

ar e n ots ubj ectto th e A c i d Ra i n Prog r am cou ld b e r e qu i r ed to i nc l ud e i n t he ir E M P a d et ail ed e m i ssions m on i tor i n g p l an t ha t m ee ts r eq ui rem en ts sp eci fi ed by the CO 2 B ud ge t T rad i ng Pro gr am

. T he se m o ni to r i ng p l a ns w ou l d b e co ns i ste nt

w i th m on i to r ing p rov i sions at 40 CF R P ar

t 7 5 ( see “ E m i ssi on s M on i tor ing” be l ow )

. CO 2 bu dg etso u r ces cou l d a l so b e r e qu ire d t oinc l ud e i n the i r

CO 2 bu dg etEM P a d et a il ed e lectr i c i ty/u se fu l ste a m ou tpu t m on i tor i ng p lan un l ess the y a l r ea dy h ave an a p pr ove d o utp ut m on i tor i ng plan un de r

t he NO X B ud ge t P r og r am o r CA IR, i n w hi ch c ase th ey w ou l d n ee d t o i nc l ud e a sta tem en t to th at effect. 5 Afte r r ev i ew i ng th e CO 2 bu d ge t EM P , t he a pp li cab l e r eg u lato ry a ge nc i es

wou l d i ss ue a p r op os ed fi na l a pp r ov al, a de nia l

, or

a fi n a l ap p r ova l w i th

con dition s. T he a pp li cab l e r eg u l at ory ag en c i e s wou l d in cor p or ate th e CO 2 bu dg ete m i ss i on m on i tor i n g p l an i n to an op erati n g p er m i t i n a ccor da nc e w i th the ir pe r m i tti ng r eg u lat i on s.

5 EPA do e s n o t cu rre n t l y re q u i re a n n u a l n e t e n e rg y o u t p u t m o n i t o r i n g u n d e r 4 0 C F R Pa rt 7 2 o r Pa rt 7 5

.O ct o b e r, 2 0 0 7

4 A l lowan ce A ll oca t i o n

A ucti on o f Allowa nce s S tat es pa rt i c i pa ting i n RGGI ha ve s i gn ed a M em or an du m of Unde r sta n din g ( M OU) th at esta bli s he s a r eg i o na l em i ssi on s b ud ge t ( the c ap )

, an d d i v i de s t he e m i ssi o ns b ud g et am on g p art ici pa t i n g st ate s .  Each sta t e w i ll all oca t e a ll ow an ces up to th e a m ou nt of i ts e m i ssi on s bu dg et, w i th e ach all ow an ce a ll ow i ng a r eg ula ted so ur ce t o e m i t o ne to n of CO 2

.

RGGI ta kes a n inn ova t i ve ap proa ch t oho w

sta tes a ll oca te a l low an ces t o

r eg u l at e d sou r c es. H i stor i ca ll y, c ap

­ a nd

­ t r ad e pr og ram s ha ve a ll oca te d all ow an ces d i r ectl y to reg u l ate d e m i ssi on s s o ur ces. Und er

RGGI, inste ad of gi v i ng a l lowan ces dir ect l y to e l ectr i c g en erato rs fo r

free , sta t es w ou l d se ll a si gn i fi ca ntp o rt i on o r a ll a ll ow an ces t hr o ug h a r eg i on a l a uct i on o r

ot he r w i se. RGGI ta kes t h i s a pp r o ach be c au se i n a com p eti t i ve w ho l esa l e m ar ket e l ectr i c ge ne r at or s p ass th r o ug h t h e m ar ket val u e o f fr ee a ll ow an ces t o t h e p r i ce the y b i d i nto th e m ar ket

. 6 T h e RGG I p r og r am p r op ose sto use th i s allow an ce va l u e t o pr ov i de i nce nt i ves fo r e nd

­ use e ne r gy ef fi c i en cy an d o th er m ea sur es, thu s l ow er ing th e i m pa ct o f th e pr og r am on el ect r i city con sum er s.

In the RGGI M OU p a rt i c i pa t i ng s tat es h ave ag r ee d t o a l locat e a 25 %

m i ni m u m o f a ll ow an ces t o su p po rt c on sum er

be ne fi t p r og ram s. 7 Ind i vidu a l pa rt i c i pa t i ng sta te s m ay ch oo se h ow to a ll oca t e t he r em ai n i ng 75 % of th e ir all ow an ces, bu t th e c l ea r tren d a m on g t he RG GI st ate s i s to au ct i on ne ar l y all of the ir a ll ow an ces an d de d i cate the p r oce ed sto sup po rt c on sum er

be ne fi ts. NY, M A , VT, RI, CT , a nd M E ha ve a ll pu bli c l y s tat ed th e i r

com m i t m en t to au cti on 10 0%, or n e ar l y 1 0 0%, of the i r a ll ow an ces t o sup po rt c on sum er be ne fi t p r og r am s ( CT , M E , RI, a nd VT ha ve st at uto ry r eq u ire m e nts to th i s ef

fect )

. 8 A l loca t i ng all ow an ces t o su pp ort con sum er be ne fi ts l ea d s to low er i ng of e l ect r i city de m an d,

r ed uc i ng t he o ve r a ll co m pl ian ce co sts of the RGGI pr og r am an d i ts i m pa ct o n el ect r i c i ty r at ep aye rs.

It i s ex pe cte d th att he r e gu l at i on s pr om ul ga te d b y m an y sta tes w i ll i nc l ud e pr ov i s i on s o u tlining th e pr oce s s fo r au ct i on i ng all ow an ces t ha t w i ll ali g n w i th th e de si g n of a r eg i o na l a ll ow an ce a uct i on p l atfor m est ab li she d j oi nt l y by t he RGGI si gn a to ry st at es. State s pa rt i c i p at i ng i n RGG I ar e cu r r en t l y d i sc ussing th e de s i gn

6 T h i s i s b e ca u s e a l l o wa n ce s ca n b e t ra d e d t o o t h e r p a rt i e s , a n d t h e ref o re h av e a m a rke t v a l u e

. G e n e ra t o rs e x p e n d a n a s s e t

– e mi s s i o n a l l o wa n ce s

– w h e n g e n e ra t i n g e l e ct r i c i t y. As s u ch

, t h e

u s e o f f re e l y a l l o ca t e d a l l o wa n ce s h a s a n “o p p o rt u n i t y co s t ” s i n ce rev e n u e f ro m t h e p o t e n t i a l s a l e
o f t h e a l l o wa n ce i s f o re g o n e

. I n a co m p e t i t i v e w h o l e s a l e m a rke t

, g e n e ra t o rs t h e ref o re p a s s o n t h e co s t of a l l o wa n ce s a s a co s t o f g e n e ra t i n g e l e ct ri ci ty, w h e t h e r a l l o wa n ce s we re re ce i v e d f o r f re e o r we re p u rch a s e d

. R G G I i s b e i n g i m p l e m e n t e d i n a re g i o n w i t h d e re g u l a t e d w h o l e s a l e
e l e ct r i c i t y m a rke t s , w h i ch wa rra n t s a d e s i g n a p p ro a ch t h a t i n c l u d e s t h e a u ct i o n i n g of a l l o wa n ce s

. 7 T h e M O U d ef i n e s “co n s u m e r b e n ef i t o r s t ra t e g i c e n e rg y p u rp o s e s ” a s t h e f o l l o w i n g : t h e u s e o f

a l l o wa n ce s t o p ro m o t e e n e rg y ef f i c i e n cy, t o d i re ct l y mi t i g a t e e l e ct r i c i t y ra t e p a ye r i m p a ct s , t o p ro m o t e re n e wa b l e o r n o n ­ca rb o n ­e m i t t i n g e n e rg y t e ch n o l o g i e s , a n d t o s t i m u l a t e o r re wa rd i n v e s t m e n t i n t h e d ev e l o p m e n t of i n n ov a t i v e ca rb o n e mi s s i o n s a b a t e m e n t t e ch n o l o g i e s

. 8 Ma i n e h a s a m o d e s t s e t ­a s i d e t o a d d re s s a p o rt i o n o f t h e e m i s s i o n s f ro m co g e n e ra t i o n fa c i l i t i e s

.O ct o b e r, 2 0 0 7

5 of a r eg iona l a uct ion p l atf or m an d t he com po ne nts of reg u l ato ry provi s ions

ne cessa ry f or i m pl em en ti ng a reg i on a l au ct i on

.

E ar ly Redu cti on Al lowan ces T he M od e l Ru l e i nc l u de s Ear l y Red uct i on A ll o wan ce ( E RA ) pr ovi s i o ns. E RAs a r e i nt en de d to prov i de an ince nt i ve f

or facili t i es t o t ake act i on s to r ed uc e CO 2 e m i ssi on s s oo ne r th an ot he r w i se w ou l d b e r eq u i red by gr an t i n g a ll ow an ces for qu a li fy i n g em i ssi on sr ed uction s m ad e b efo r e t he CO 2 B ud ge t

T rad i ng P r og r am sta rt d at e. ERAs ar e aw ar de d d i r ect ly to the CO 2 bu d ge t so u r ce, a r e
no t i nc l ud ed in t he au ct i on , an d a r e i n a d d i t i on to th e ca p. T o b e e li g i b le to

r ece i ve E RAs, a CO 2 bu dg ets ou r ce m ustsu bm i t a n ERA

ap pli cat i on no l ate r tha n M ay 1, 20 0 9 de m on str at i ng th e fo ll ow i ng :

· A n a bso lute red uct i on in t he m ass o f CO 2 em i tte d du r ing th e ea r l y
r ed uct i on pe r i od ( th e th r e e ye ar s20 06

, 20 07

, an d 2 00 8 ) , re l at i ve t o the ba seline p e r i od ( t he th r ee ye ar s 20 03 , 2 0 04 , 2 00 5 –th e t hr e e ye a rs i m m ed i at el y pr ece din g t he ea r l y r ed uct i o n p e r iod)

· A r ed uct i on i n th e ave r ag e CO 2 em i ssions r a t e r esu l t i ng fr om el ectr i c
en er gy o ut pu t an d use fu l th e r m al en er gy ou tp ut for

a ll t he CO 2 B ud ge t Uni ts a t t he CO 2 bu d ge t so u r ce du r i ng t he ea r l y red uct i on pe r i od r e l at i ve to the b as e l ine p e r i od

· F ac i li ty sh utd ow ns ar e no t e li g i b le fo r ERAs

A llowance Ret i r em en t fo r Voluntar y Ren ewa bl e Ene r gy Pur ch ase s In or de r to p r om ot e an d i ncr ea se su pp ort fo r ren ew ab l e e n er gy an d t o
en cou r a ge c i t i zen s to vo l un ta r il y pu r c ha se e l e ctr i c i ty tha t h as a de m on str ate d gr ee nh ou se ga sb en efi t , th e M od e l Ru l e con ta i ns o pt i on a l p r ov i s i on s t ha t p r ov i de for th e r et i r em en t CO 2 all ow an ces f r om a p art ici pa t i n g st ate ’s CO 2 em i ssions bu dg etf or vo l un ta ry r ate pa y er p ur cha sesof q ua li fi e d r en ew ab l e e ne r gy.

I m po si ng a ca p on CO 2 cr ea te s i nce n ti v es fo r ge ne r at ing e l ect r i c i ty i n

ways t ha t d o no t e m i t ca r b on d i ox i d e ( e. g., r e ne wab l e e ne r gy)

. How eve r , i n a cap pe d en v iro nm en t, the de ve lop m en t o f n ew r en ew ab l e e l ectr i c ge ne rat i on facili t i es do es no t n ece ssa r il y r ed uce th e em i ssi on s of car bo n d i ox i d e a ssoc i at ed

w i th el ectr i c g e ne r at ion .  Th i s i s be ca use th e pr od uct i o n o f e l ect r i c i ty b y n on

­ car bo n em i tt i ng s ou r ces do es n o t l ow er

th e ca p a nd th e n um be r of a ll ow an ces
ava il a ble. T he r e fo r e, e l ectr i c g en erato rs c an con tinu e t oem i t ca r bo n d i ox i de as l on g a s CO 2 a l lowan ces a r e av ailab l e. Und er thi s sc en ar i o, ad d i t i on a l e l ectr i c ge ne r at ion by r en ew ab l e sou r c es co u l d m ake i t e asier

fo r car bo n d i ox i d e­ em i tt i ng el ect r i c g en er at o rs to m ee t th e ca p ( by a vo iding CO 2 e m i ssi on sa nd r ed uc i n g t he de m an d fo r CO 2 all ow an ces) , w hi ch cou l d a ff ect ge ne r ato r d i spa tch or de r

. How eve r , g en er at or s cou ld st il l em i t CO 2 up to th e l eve l o f t he ca p o r ba nk all ow an ces for fu tu r e use

. Con seq u en t l y, i nc rea sed r e ne wab l e en er gy ge ne r at ion wou l d he l p ach i ev e t he em i ssi on s cap at l ow er

cost , b ut wou l d n ot

ne cessa r il y resu l t i n l ow er ove r a l l CO 2 e m i ssi o ns. T h i s d y na m i c pr ec l ud es
m ar ket er s fr om sta ti ng un e qu i voca ll y th at vo l u nta ry ren ew ab l e en ergy p ur c ha sesO ct o b e r, 2 0 0 7

6 can be u se d to o f fse t a p ur cha s er ’s CO 2 em i ssi on s, a q ua li ty th at i s of

ten hi gh li g ht ed to con sum er s w he n m ar keti ng suc h p r od ucts.

T o r em ed y th i s situa t i on , a ll ow an ces co u l d b e r et i r ed i n an am ou nt eq ui v a l en t t oth e av o i de d CO 2 em i ssi o ns r esu lti ng fr om vol un ta ry pu r cha ses of qu ali fied r e ne wab l e en er gy .  Re ne wab le e ne rgy p ur cha s es w ou l d q ua li fy fo r

th i s

r et i r em en t i f t h ey r e pr ese n t a vo l u nta ry p ur cha se o f e li g i b l e r en ew ab le e ne r gy o n be ha l f o f r eta il cu stom er s i n a resp ect i ve pa rt ici pa t i n g st ate , p r ov i d ed th a t su ch pu r cha ses r ep r ese nt r en ew ab le e ne r gy g e ne rati o n i n t he RGGI r e g i on an d m ay
no t b e us ed fo r co m pl i a nce w i th ren ew ab l e po rtfo li o st an da r ds in th e RGG I

r eg i on , o r a r en ew ab le p or tfo li o st an da r d in a n y ot he r st ate .  De pe nd i ng on th e
an nu a l m ar gi na l or a ve r ag e C O 2 em i ssi on r a t e fo r e l ect r i c ge n er at i o n, as de ter m i ne d b y t he a p pli c ab l e i nd e pe nd e nt sys tem op er ato r

( ISO), the ap p l i c ab l e
r eg u l at o ry a ge ncy i n a p art i c i pa t i n g st ate wou ld r et i r e a ll ow an ces r ep rese nt i ng
som e s m al l po rt i on o f t he sta te’s e m i ss i on s bu dg et.

T em po r al F lex i b i li ty M ech an i sm s

Overvi ew T he M od e l Ru l e i nc l u de s a n um be r of te m po r al fl ex i b ili ty m ech an i sm s ( i .e ., ba nkin g, e xte nd ed co m pl i an c e p er iod , a n d e a r l y r ed uct ion a ll ow an ces)

. A l lowan ce bo r row i ng i s no t includ ed i n th e m od el r u l e.

B an ki ng T he M od e l Ru l e p r ov i de s f or th e b an k i n g o f a llowan ces w i th no
r estr i ct i on s. Bank i ng p r ov i de s f acili t i esw i th th e a b i li ty to ca r ry ove r un us ed all ow an ces f r om a cu r r e nt com pl i a nce pe r i od into fu tu r e co m pl iance p er i od s. T he r e fo r e, ba nk i ng s ho u l d p r ov i de a l low an ce p r i c e st ab ili ty w hil e pr ov i d i ng an i nce n ti v e to h ed ge fut ur e yea r em i ssi on s un ce rta i nty.

E x ten de d Compli an ce Per i od T he M od e l Ru l e p r ov i de s f or a thr ee

­ yea r com pli an c e pe r iod. T h i s
com pl i an ce p er i od c an be exten de d t o f

ou r ye ar s i n t he eve nt o f a sta ge

­ two tr igge r eve nt ( see “ P r i c e T r igg er s ” be l ow ) . M ulti

­ y ea r

com pli an ce pe r i od sw er e
em pl oye d to p rovid e r e gu l ate d fa c ili t i es m or e f l ex i b ili ty to ad j ust to var i at i o ns i n el ect r i c i ty d em an d ( dr i ven by m ete or olo gy a nd l oa d g r owth) , fue l pr i ce s p i kes, cl ea n u n i t o u ta ge s, et c.  A l on g er com pli an ce pe r i od m ay a l so l ea d t o r eso u r ce ( ad m i ni st r at i ve) s av i ng s fo r th e r eg u l a ted fa c iliti es an d t h e st ate s i m pl em en ti ng the pr o gr am

. T hi s de s i gn com po ne nt was i nc lude d i n li eu of a ll ow an ce bo r r ow i ng , a s i t a ll ows fo r de fa cto bo r row i ng w i thi n a th r e e­ yea r

com pl iance pe r i od

.O ct o b e r, 2 0 0 7

7 P r i ce T r i gg er s

T he M OU a nd M od e l Ru l e i nc lud e a ll ow an ce pr i c e t r i g ge rs, w hi ch pr ov i d e ad ditio na l co m pli an ce flex i b i li ty an d p r i ce d am pe ning i n t h e e ven t o f h i g he r all ow an ce pr i cesin two d i st i nct sta ge s.

A sta ge

­ on e tr i gg e r e ve nt occu r s i f th e twel v e­ m on th r oll ing a ve r ag e CO 2 all ow an ce pr i ce i se qu a l to o r gr ea t er th an th e sta ge on e t r i gg er p r i c e. T he stag e­ on e tr i g ge r p r i ce i s set at $7 i n 20 05 do ll ar s , a nd w ill be ad j uste d u p o r do w n ea ch yea r a ccor d i ng to th e con sum er pr i ce i nd ex .  I n t he eve nt tha t a stag e­ on e tr i g ge r e v en t o ccu rs, CO 2 bu dg etu ni ts w ill b e a b l e t oex pa nd th e i r use of CO 2 offset a ll ow an ces fr om 3. 3% of t he i r

co m pl i an ce o b li g at i on to 5% of the ir

com pl i an ce o b l iga t i on ( see “ Offse ts ” be l ow )

.

A sta ge

­ two tr igg er e ven t occu rs i f t he tw el ve

­ m on th r oll ing a ve r ag e CO 2 all ow an ce pr i ce i se qu a l to o r gr ea t er th an th e sta ge

­ two t r i gg e r p r i c e. T he stag e­ two tr i gg e r p r i ce i ssetat $1 0 i n 2 00 5 d oll a rs, a nd w ill b e a dj uste d u p o r do w n ea ch yea r a ccor d i ng to th e con sum er pr i ce i nd ex pl us two p er ce nt.

If a sta g e­ two tr i gg e r e ven t occu rs:

· CO 2 bu dg etu n i ts w ill b e ab l e t ouse CO 2 offse t a ll ow an ces to s at i sfy 10 % o f t he i r com pl i an ce ob li ga t i o n;

· T he co m pli an ce p er i od w ill be exten de d t o f

ou r yea rs; an d,

· CO 2 offset a l lowan ces m ay be a war de d for th e p er m an en t r et i rem en t of gr ee nh ou se ga s a ll ow an ces o r c r ed i ts t ha t ha ve b ee n i s sue d pu rsua nt to a ny m an da tory c ar bo n co nst r a i n i n g p r og r am ou tsi de th e Uni ted State s th a t p l ace s a sp ec i fi c to nn ag e lim i t o n g r ee nh ou se g as
em i ssi on s, o r g r e en ho us e g as e m i ss i on s red u cti on cr ed i ts c ert i fi ed pu rsua nt to th e Un i te d Nat i o ns Fram e wor k Con ven t i on on Cli m ate Chan ge ( UN F CCC ) o r pr oto co l s ad op ted th r o ug h t he UN F CCC pr oce ss.

T he p r i c e tr i gg er p r ov i s i on s i nc l u de a 1 4­ m on th m ar ket sett li ng pe r i od

, w hi ch com m en ces atth e st a rt o f e ach ne w

co m pl i an ce p e r i od

. T he tw el v em on th r oll ing a ve r ag es use d t o c a l cu l ate t he s tag e o ne an d st ag e two t r i gg e r
eve nts can n ot i nc l ud e th e 1 4­ m on th m ar ket sett li n g p er iod. T he r e for e, th e
ea r li estth a t e i th e r tr i gg er ev en t ca n occu r i s 2 6 m on ths aft er th e co m m en ce m en t of a co m pl i a nce p e r i od

.

Cal cu l at i o ns o f t r i gg e r pr i ces, an d d et er m i na t ion s as to w he the r or

n ot a stag e­ on e or s ta ge two t r i gg e r eve nt ha s occ u r r ed , w ill be pe rf or m ed by the ap pli c ab l e reg u l at o ry a ge ncy, i n co ns ulta t i on w i th the ap p li ca ble r e gu l ato ry ag en c i es i n o th er s i g na to ry sta tes.O ct o b e r, 2 0 0 7

8 E m i ssi on s M on i to r i ng

T he e m i ssion s m on i to r i ng an d r ep o rt i ng sect i o n o f th e M od e l Ru l e
r eq u i r es th e ow ne rs a n d o pe r ato r s an d/or

th e CO 2 A uth or i ze d A ccou nt Repr ese nt at i ve of e ach CO 2 bu dg etu n i t t o i ns ta ll a nd cer

tify m on i tor i ng sys tem s
an d t o co ll ect , r eco r d, q ua li ty­ assu r e a n d r e po rt d ata ne cessa ry to qu an t i fy CO 2 m ass e m i ssi on s fr om th at un i t. T he em i ssion s m on i tor ing an d r ep o rt i ng pr ov i s i on s co n ta i ne d i n th e M od e l Ru l e ar e p r im ar i l y ba se d u po n th e US E P A

m on i to r i n g pr ov i s i o ns at 4 0 CF R P art 75 , a n d con ta i n m an y spe ci fi c r efe ren ces t o the se provi s ion s.

T ho se so ur ces t ha t wou l d be subj ect to th e C O 2 B ud ge t T r ad i ng Pro gram tha t a r e a l so subj ectto th e Aci d Ra i n Pro g r am ar e a l rea dy req u i r e d b y EP A

Aci d Rai n r u l es to m on i to r , reco r d, an d r ep o rt CO 2 m ass e m i ssi on s a nn u all y. T ho s e
sou r ces subj ectto CO 2 B ud ge t T r ad i n g P r og ram th at ar e n ot A cid Ra i n so u r ces
ar e su bj ectto th e Clea n A i r In ter stat e Ru l e, w hi ch r eq u ire s sou r ces t o r ep o rt

m ass e m i ssi on s o f o x i de sof n i t r og en on an a nn ua l ba s i s.  S i nce the ph ys i c al eq uipm en t n ece ssary to m on i to r em i ssi on sof ox i de s of n i t r og en on an an nu a l ba si s i s a l so cap a ble o f m on i to r ing fo r

CO 2 m ass em i ssi on s, t he Data Acqu i s i t i o n
an d Ha nd li ng System s wou l d n ee d m od i fi cat i o n t o q ua nt i fy CO 2 m ass e m i ssi on s ( ad d i t i on a l pr og r am m i ng w i th the ad d i t ion a l fo r m ul as r e l at i ve t o CO 2 )

. T he ap pli c ab l e ag en c i es i n p art i c i pa t i n g st ate s ar e cur r en t l y in co m m un i cati on w i th the Clean A i r M ar ket s D i v i s i on of th e Un i ted S tat es Envir on m en tal Pro tect i on A ge ncy to d et e r m i ne if US E P A w i ll acc ep t a n d p erfo r m qu ali ty a ssu r an ce d ata che cks o n CO 2 m ass e m i ssi on m on i to r i ng da t a f r om no n­ A ci d Ra i n Prog r am subj ectso ur ces.

T he m on i to r i n g pr ov i s i o ns o f th e M od e l Ru l e incl ud e d ea dline s an d pr oce du r es fo r th e i n i t ial cert i fi cat ion of

, an d, u nd er ce rta i n c i r c um stan ces, the

r ece rt i fi cat ion o f Co nt i nu ou s Em i ssi o n M on i tor i ng System s.  Aci d Ra i n Pro gr am subj ectso ur ces th at h ave a lre ad y c ert i fi ed CO 2 m on i to r i ng syst em s w i ll no t

r eq u i r e initia l ce rt i fi ca tion bu t m ay r eq ui re r ece rti fi c at i on i f, f or ex am pl e, cha ng es to the m on i to r i n g syste m tr i gg e r such r ece rt i fi c ati o n.

T he m on i to r i n g sect i on esta b li she s pr oce du r e s to ap p l y co nse rvat i ve
m i ssi ng d at a r ou t i n es i n t he eve nt t ha t a m on i tor ing system fa il s to m ee t q ua li ty

assu r an ce an d q ua li ty co nt r o l r e qu i r em en ts.

T he m on i to r i n g sect i on con ta i ns sp ec i fi c pr ov isi on s r eg a r d i ng :

· Requ ire m en ts t o pr ov i de he at i n pu t d at a;

· Requ ire m en ts t o pr ov i de e l ectr i c i ty a nd use fu l stea m ou tpu t d ata ;

· P r oce du r es fo r fili ng p et i t i on s for a l t er na t i v e m on i tor i ng plan s; a n d,O ct o b e r, 2 0 0 7

9 · P r oce du r es fo r q ua nt i fy i ng the p ort i on of CO 2 em i ssi on s a ssoc i at ed

w i th th e com bu sti on o f e li g i b l e b i om ass. 9

Offse ts ( P r oj ect

­ B ase d Em i ssi on sRed uct i on s Out side the C ap pe d Sect or )

T he e m i ssion s o ffse t p r ov i s i o ns o f th e M od e l Rul e p r ov i de com pl i an c e fl ex i b ili ty b y a war di n g CO 2 offset a ll ow an ces to pr oj ects ou ts i de t he cap p ed secto r th a t r ed uce a n d/ or s eq ue ste r em i ssi o n s of gr ee nh ou se ga ses. CO 2 offset all ow an ces m ay be u sed to sat i sfy a li m i ted fracti o n o f a s ou r ce’s c om pl i an c e ob li g at i on

. I n i t i a l l y , t he use of CO 2 offse t a ll owan ces i s co nstra i ne d t o 3 .3% of a
un i t’s to ta l co m pli an ce o b l iga t i on du r i ng a co nt r ol p er i o d, tho ug h t h i s m ay b e
ex pa nd ed to 5 % a nd 10 % if a sta g e o ne or

st ag e two t r igge r eve nt occ ur s,
r esp ect i ve l y.

In or de r to e nsu r e th att he CO 2 offset a ll ow an ces aw ar de d r ep r ese nt

CO 2 ­ eq ui v a l en t e m i ss i on s red uct i on sor ca r bo n s e qu estr at i o n t ha t ar e r ea l , a dd i t i on a l

, ver ifiab l e, e nfor ce ab l e, a nd pe r m an en t, h i g hl y

pr escr i pt i v e st an d ar ds w er e de velo pe d f or sp ecifi c pr oj ect cate g or i es. At th i s t i m e, on l y th e fo ll ow i ng fi v e pr oj ectca te go r i esa r e eligib l e fo r CO 2 offset a ll ow an ces:

· La nd fill m et ha ne ca pt ure a nd de str uct ion ;

· Redu ction i n em i ss i on s of s u l fur he xafl uo r i de ( S F 6 ) ;

· S eq ue str at i o n of ca r bo n d ue to afforesta t i on ;

· Redu ction o r a vo i da nce of CO 2 em i ssi o ns fr o m n at ur a l ga s, oil

, or pr op an e en d

­ use com bu sti on d ue to e nd

­ use en er gy e ffi cien cy i n t h e bu il d i n g secto r ; a nd

,
· Avoi de d m et ha ne e m i ssion s from ag r i cu l tural m an ur e m an ag e m en t op er at i o ns.

T he i n i t i a l li st o f p r oj ectcat eg or i es w as se lect ed w i th con s i de r at i on of

ex pe cte d offsetsu p p l y w i th i n t he bo rde rs of

RGGI M OU si gn a tory st ate s; th e

r elat i ve ea s e of d ev e l op i ng st an da r ds; an d, th e li ke li ho od of

m an da tory gr ee nh ou se ga sr eg u lat i on s fo r th at sect or .  The p art i c i p at i ng sta t es i nte n d t o de velo p m et ho do log i es fo r eva l ua t ing ne w ca t eg or i es of of fset pr oj ects.

E l ig i b l e of fs etp roj ect s m ay b e l oca t ed i n a ny pa rt i c i pa t i ng sta te, or

an y oth er sta te o r U.S. j ur i sd i ct i on i n w hi ch a co op er at i ng r eg u l at ory ag en cy ha s
en ter ed int o a M OU w i th th e p ar ti c ipa t i ng st at es t o p r ov ide ove r s i gh t su pp ort

r elat ed to CO 2 em i ssi on s o f fse t p r oj ects i n t ha t sta te or U.S. j ur i sd i ct i on

. 1 0 Offse t

9 At t h i s t i m e , p ro ce d u re s h av e n o t ye t b e e n d ev e l o p e d f o r d e d u ct i n g C O 2 e mi s s i o n s a ss o ci a t e d

w i t h t h e co m b u s t i o n of l i q u i d b i o m a s s f u e l

. T h e n e t G H G e mi s s i o n s b e n e f i t s of co m b u s t i n g l i q u i d b i of u e l s ca n v a ry s i g n i f i ca n t l y d u e t o t h e w i d e ra n g e of l i q u i d b i of u e l s p ro d u ct i o n p ro ce s s e s a n d f e e d s t o cks

. T h e p a rt i c i p a t i n g s t a t e s a re j o i n t l y re s e a rch i n g t h e a p p ro p ri a t e m a n n e r of a d d re ss i n g l i q u i d b i of u e l s

. 10 C o o p e ra t i n g re g u l a t o r y a g e n ci e s wo u l d p rov i d e a d mi n i s t ra t i v e ov e rs i g h t a s s i s t a n ce t o t h e Si g n a t o ry St a t e s t o h e l p e n s u re t h e cre d i b i l i t y of of

f s e t a l l o wa n ce s f ro m t h e s t a t e o r ot h e r j u ri s d i ct i o n

.O ct o b e r, 2 0 0 7

10 pr oj ecta pp l i c at i on s w ill be s ub m i tte d t o t h e a p pr op r i at e r e gu l ato ry

ag en cy in t he stat e w he r e th e p r oj ectoccu rs.  App li ca tion s f

or pr oj ects no t l oc ate d i n an y RGGI si gn a to ry st at e w ill b e su bm i tte d t o a ny on e R GGI signa to ry sta te.

E l ig i b l e of fs etp roj ect s m ust go th r ou g h a two­ step a pp li cat i o n pr oc ess a nd

m ust be ve r i fi ed a fte r bo th ste ps b y an accr e dite d i nd ep e nd en t ver i fi er . T h e fi r st step i s a co ns i st en cy d et er m i na t i on , w he r eb y t he ap p li cab l e r eg u lato ry a ge ncy

wou l d de te r m i ne w he the r a proj ect m ee ts th e eli g i b ili ty c r iter i a. T he s eco nd st ep i s th e sub m i tta l o f a n an nu al m on i tor i ng a nd v er ifi c at i on r ep or

t, w hi ch req u i r esth e ap pli c an t t o de m on str ate th e p r ec i se a m ou nt of gr ee nh ou se ga s em i ssions

r ed uce d or se qu est e r ed be for e offset a ll ow an ces a r e a war de d

.

A key com po ne nto f t he of fse t p r ov i s i o ns i n t h e M od el Ru l e ar e tho se t ha t ad dr ess p r oj ect“ ad d i t i o na li ty” . Bro ad l y, a d ditio na li ty

at tem pts to ad dress w he the r i ncrem en ta l g r e en ho us e g as e m i ss i on s red uct i on s w ill be ach i eve d fr om an of

fset pr oj ectth atwou l d n otot h erw i se h av e o ccu r r e d i n th e a bse nce o f th e RGG I offsets com po ne nt

. A dd i t i on a li ty i s t he key c r iter i a fo r

en su r ing tha t o ffse ts pr oj ect s r esu l t i n “ r ea l ” e m i ssi on s r ed uct ion s in th e co nt ext o f a cap

­ an d­ t r ad e pr og r am

. S i nce o ffse ts a ll ow an ad d i t i o na l to n of CO 2 to be e m i tte d fr om so ur ces subj ectto RGGI fo r e ach to n of em i ssion r e du cti on ach i eve d th r o ug h a n of

fset

, offset proj ects m ustp r ovid e r e aso na b l e assu ran ce t ha t the y a r e a ch i ev i n g
em i ssi on s r e du ct i on s t ha t wou l d no t o t he r

w i se ha ve o ccu r r ed in th e a bse nce of the of fse t pr ov i s i on so f RGGI

. T h i s p r esu m es tha t o ffse ts m ust i nvo l ve a ct i o ns tha t a r e u n li ke l y to occu r u nd er a bu s i ne s s­ as­ usu al sce na r io ( sta nd ard m ar ket pr act i ce)

.

E val ua t i n g ad d i t i o na li ty i s d i ffi cu l t, s i nc e i t r e q ui res a cou nte rf

actu a l

asse ssm en t b ase d on assu m pti on s a bo ut w ha t wou l d li ke l y ha ve occu r r ed i n the ab sen ce of th e of fse t p r oj ect. Itm ay a l so i nvo l ve a n e va l ua tion of i n dividu a l pr oj ectd eve l op er int en t to de t er m i ne i f a p r oj ect pr ese nts an attr act i ve i nve stm en t a lter n at i ve ab se nt offse t a ll ow an ce r eve nu e

. Despi te th e p r ob l em at i c na t ur e o f d ete r m i ni ng ad d i t i on a li ty, t he

en viro nm en ta l i nt e gr i ty o f em i ssi on s offsets, a nd by exten sion the en v i r o nm en tal i nte gr i ty o f th e cap

­ an d

­ tr a de syste m , p r esu m es t ha t b es t p r acti c a l ef

fo rts a re
m ad e to a ccou ntfo r a dd i t i on a li ty. Offse ts m ech an i sm s w i tho ut ad d i t i o na li ty

cr i t er i a wou l d si m pl y i nvo l ve qu an t i fi c at i on of em i ssi on s r e du ct i on s ach i eve d thr ou gh typ i ca l m ar ketact ivities.

T he r e a r e two l eve l s o f ad d i t i on a li ty, “ reg u l ato ry ad d i t i on ali ty ” an d

“ fina nc i a l a d d i t i on a li ty” :

· Regu lato ry ad d i t i on a li ty i s the s i m pl estve r s i o n of ad d i t i o na li ty –o nl y pr oj ect

­ ba sed r ed uct i o ns n ot r eq u i red by l aw

o r r eg ula t i on wou ld b e eli g i b l e. Ho weve r , for m an y of fsettyp es t h i s s tan da r d wou l d a ll ow a si gn i fi ca ntn um be r o f vo l un t ary act i o ns t ha t are o the r w i se h i gh l yO ct o b e r, 2 0 0 7

11 eco no m i call y a ttr act i ve or rep r es en tat i ve of st an da r d m ar ket pract i ce t o
r ece i ve of fs eta ll ow an ces. M an y of th ese act ions wou l d b e con s i de r ed bu si n ess­ as

­ usu a l b y a w i de ran ge of stake h o l de r s.

· F inan c i a l a d d i t i on a li ty attem pt s to d et er m i ne w he the r

a pr oj ect i s l i ke l y to be e co no m i call y a tt r act i ve ab sen t t he reve n ue str ea m pr ovide d b y
an em i ssi on s of fse t. T h i s rou te i s b e i ng ut ili ze d b y th e C l ea n Devel o pm en t M ech an i sm ( CDM ) an d h as t ypicall y be en eva l u ate d o n
a ca se­ by

­ case b asi s , a p roce ss th at ha s r ece i ved s i g n i fi can t c r iti c i sm

. CDM fi na nc i a l a d ditio na li ty e va lua t i on ty pi c a l l y

i nvo l vesth e f ollow i ng :

o Ide nt i fi cat i on of a l te r na t i ves t o t he pr oj ect

o B ar r ier s a na l ysis ( m ar ket ba r r i e r s, te c hn o l og y ba r r i e rs, o r fina nc i a l ba r r i e rs)

o Co m m on p r act i ce an a l ys i s

o Inve stm en t a na l ys i s ( pr oj ect­ spe c i fi c a na l ys i s, such as IRR or

NP V )

w i th an d w i th ou t t he p r oj ecte d r eve nu e st r ea m pr ov i de d by t he CDM o ffse t cr ed i ts. Det er m i na t i on i s m ad e a s to w he the r

th e pr oj ect , w i th ou t o ffs etcr ed i t r eve nu e, i s l ess finan cia l l y at tract i ve tha n o th er m ar keto pt i on s.

T he M od e l Ru l e em pl oys a be nch m ar k an d p e rfor m an ce st an da rd a pp r oa ch t o
eva l u at i ng th e ad d i t i o na li ty o f a p r os pe ct i ve o f

fsetpr oj ect, r ef er r e d t o a s a

“ stan da r d i zed a pp r o ach ” . Benc hm ar ks an d p e rfor m an ce st an da rds a r e pr ox i es tha t

m ay b e use d to i nf er fi n an c i a l ad d i t ion a li ty, a s ou tli n ed be l ow :

· B en chm ar k i s a qu a li ta t i ve e li g i b ili ty cr i te r i on f

or a cate go ry of pr oj ects tha t r ea s on ab l y e nsu r esth at a pr oj ect i s un li kel y to o ccur un de r stan da r d m ar ketp r act i ce. F or ex am pl e, pr oh ibi t i on of rece i pt of bo th offset a ll ow an ces an d oth er att r i b ute cred i ts, s uch as r e ne wab l e
en er gy c r ed i ts ( RE Cs), or th e a b ili ty to r ece i ve bo th on l y un de r certa in li m i ted co nd i t i o ns.

· P erfor m an ce sta nd ar d i s a q ua nt i ta t i ve e li g i b ili ty cr iter i on th at esta b l i s he s a m et r i c f or de ter m i nin g i f ca t eg or ies o f p r oj ects are
un li ke l y to occu r u nd e r sta n da r d m ar ket pract ice. T he cr i ter i o n i s
usu all y est ab li she d i n r e lat i on to the pe rfor m an ce le ve l ach i eve d thr ou gh sta nd a r d m ar ket pr act i ce fo r t he cat e go ry of acti v i t ies e li g i b l e for a ce rta i n typ e of o f fset .  Proj ects tha t m ee t o r sur p ass t he st an da r d qu ali fy a s a d ditio na l

. E xa m pl es o f p erfo r m an c e st an da r ds i nc l ud e :

o E m i ssi on r at e

o E ne r gy ef fi c i en cy c r i te r i a

o M ar ketp en et r at i on r at eO ct o b e r, 2 0 0 7

12 T he se b en chm ar ks a nd pe r for m an ce st an da rds a r e u s ed i nd e pe nd e nt l y or i n t an de m , d ep en d i ng o n t he m ar ket s i tua t i on for

spe c i fi c cat eg or ies o f e li g i b l e offset proj ect typ es.