Cap and Trade and State Planning for Carbon Reduction Grants

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On June 17, 2019, New Jersey adopted rules to rejoin a regional alliance of states with a mutual carbon use reduction plan and to establish “cap and trade” auctions for carbon use in the state. At the same time, the state outlined priorities for public grants and loans to local governments and private businesses for carbon reduction projects.

Through these steps, New Jersey is rejoining the Regional Greenhouse Gas Initiative, a cap-and- trade program for power plants in  Mid-Atlantic and Northeast states. The RGGI  participating states establish a regional CO2 budget allowance cap, which represents the sum total of the participating state’s CO2 emissions annual base budgets. Each year, each participating state issues CO2 allowances in an amount equivalent to its  annual base budget. Each allowance represents the limited authorization to emit or discharge one ton of CO2. CO2 budget sources in the participating states are required to hold allowances equivalent to their emissions. The vast majority of the allowances are distributed through quarterly, regional CO2 allow- ance auctions, which are the main platform for CO2 budget sources to purchase CO2 allowances. Quarterly auctions are held on behalf of the states as a sin- gle auction, administered by RGGI, Inc.

New Jersey’s cap and trade regulations will re- quire all fossil-fuel-fired facilities located in New Jersey with the capacity to generate at least 25 mega- watts of electrical output, with some specific exceptions, to hold allowances equal to their CO2 emissions over a three-year control period. Allowances will be offered through those quarterly, regional RGGI allowance auctions.

N.J.S.A. 26:2C-50 directs that the proceeds from the quarterly auctions that are returned to the State for investment be credited to a special fund, known as the Global Warming Solutions Fund (“GWSF” or “Fund”). The Fund will then be used to provide consumer benefits incentives to reduce greenhouse gas emissions at their source, reduce the demand for en- ergy, and to conserve natural resources. See N.J.S.A. 26:2C-51. This will be done by allocating money to the DEP, the Economic Development Authority and Bureau of Public Utilities to support programs and projects Overall, New Jersey will allocate 60 percent of it’s RGGI revenue to energy efficiency and renew- able energy projects for commercial, institutional and industrial entities.

Twenty percent will go to reducing electric use and costs for low- and moderate-income customers while 10 percent will be distributed to local governments for energy-related projects and 10 percent will be used to sequester GHGs in forests and tidal marshes.

The Three state agencies allocating the grant mon- ey must develop a “strategic plan” for grant priorities, initiatives on what programs and sectors to fund and detail coordination within those agencies. The agencies must complete their first strategic funding plan no later than 30 days after the certification of  the results of the first CO2 allowance auction in which New Jersey participates.