COMMENTS OF DWIGHT ALPERN ON
PROPOSED CO? BUDGET TRADING  PROGRAM                                                                 4/3/18                                                                                                                             

I am commenting in support of Virginia Department of Environmental Quality’s proposed rule for participation in the RGGI CO2 Budget Trading Program.  I was formerly the attorney-advisor for the U.S. Environmental Protection Agency’s Clean Air Market Division and heavily involved in writing, editing, revising, and implementing regulations for allowance trading programs, starting with the Acid Rain Program and NOX SIP Call.  Drawing on this experience, I suggest below some rule revisions to facilitate proper operation of Virginia’s program and achievement of CO2 emission reductions.  Suggested rule revisions are in bold (for new language) and strike-out (for removed language).

1.  Accounting for CO2 conditional allowances.

The proposed rule does not explain clearly how a holder of a public contract with DMME would set up and operate a conditional allowance account.  The function of such an account -- i.e., holding and consignment to auction of CO2 conditional allowances -- would be similar to that of any general account established by other persons, i.e., holding and transfer of CO2 allowances.  Neither account’s function would include holding allowances for compliance.  The simplest approach would be to revise the rule to clarify in proposed 9VAC5-140-6020 C that accounts for handling conditional allowances are a type of CO2 Allowance Tracking System account (in revised definitions of “CO2 Allowance Tracking System” and “CO2 Allowance Tracking System account”) and that those accounts of holders of public contracts with DMME (but not of CO2 budget sources) are general accounts (in a revised definition of “general account”).  This would make applicable to the public contract holders’ accounts the general-account provisions, e.g., for applying for an account and selecting and changing an authorized account representative, alternate, and electronic submission agent.  Consistent with these definition revisions, conforming revisions should be made to proposed 9VAC5-140-6220 A, 9VAC5-140-6230 A, 9VAC5-140-6240, and 9VAC5-140-6250 A and B.

For example, proposed 9VAC5-140-6230 A should be revised to read:

9VAC5-140-6230 A

A. Upon receipt of a complete account certificate of representation under 9VAC5- 140-6110 or subsection B of this section, the department or its agent will establish a conditional allowance account and a compliance account for each CO2 budget source or and a conditional allowance compliance account for a holder of a public contract with DMME for which the account certificate of representation was submitted. 

2. Allowances usable for compliance.

The proposed rule requires Virginia CO2 budget sources to hold “CO2 allowances” for CO2 emissions (proposed 9VAC5-140-6050 C 1 and 2 and 9 VAC5-140-6260 B) but defines the term “allowance” (proposed 9VAC5-140-6020 C) by referring only to the Virginia CO2 Budget Trading Program.  That definition should be expanded to include CO2 allowances issued by any other state participating in the RGGI program.  If VDEQ also decides to allow Virginia CO2 budget sources to use for compliance offset allowances issued by any participating state, the same limitations on the use of offset allowances by other RGGI states’ sources should apply to Virginia sources, i.e., limited use to cover emissions and no use for excess emission deductions.

If offset allowances are to be usable, the proposed rule should be revised to read:

9VAC5-140-6260 A 1, 3, and 4

1. The CO2 allowances, other than CO2 offset allowances, are of allocation years that fall within a prior control period, the same control period, or the same interim control period for which the allowances will be deducted.

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3. For CO2 offset allowances, the number of CO2 offset allowances that are available to be deducted in order for a CO2 budget source to comply with the CO2 requirements of 9VAC5-140-6050 C for a control period or an interim control period may not exceed 3.3 percent of the CO2 budget source’s CO2 emissions for that control period, or of 0.50 times the CO2 budget source’s CO2 emissions for an interim control period, as determined in accordance with Article 6 (9VAC5-140-6220 et seq.) of this part and Article 8 (9VAC5-140-6330 et seq.) of this part.

3. 4. The CO2 allowances are not necessary for deductions for excess emissions for a prior control period under subsection D of this section.         

9VAC5-140-6260 C 2

2. The department or its agent will deduct CO2 allowances for a control period from the CO2 budget source's compliance account, in the absence of an identification or in the case of a partial identification of available CO2 allowances by serial number under subdivision 1 of this subsection, as follows:

i. First, subject to the relevant compliance deduction limitations under subsections A and D of this section, CO2 offset allowances. CO2 offset allowances shall be deducted in chronological order (i.e., CO2 offset allowances from earlier allocation years shall be deducted before CO2 offset allowances from later allocation years). In the event that some, but not all, CO2 offset allowances from a particular allocation year are to be deducted, CO2 offset allowances shall be deducted by serial number, with lower serial number allowances deducted before higher serial number allowances.

ii. Second, any Any CO2 allowances, other than CO2 offset allowances, that are available for deduction under subdivision 1 of this subsection. CO2 allowances shall be deducted in chronological order (i.e., CO2 allowances from earlier allocation years shall be deducted before CO2 allowances from later allocation years). In the event that some, but not all, CO2 allowances from a particular allocation year are to be deducted, CO2 allowances shall be deducted by serial number, with lower serial number allowances deducted before higher serial number allowances.

9VAC5-140-6260 D 1

1. After making the deductions for compliance under subsection B of this section, the department or its agent will deduct from the CO2 budget source's compliance account a number of CO2 allowances equal to three times the number of the source's excess emissions. In the event that a source has insufficient CO2 allowances to cover three times the number of the source's excess emissions, the source shall be required to immediately transfer sufficient allowances into its compliance account. No CO2 offset allowances may be deducted to account for the source’s excess emissions.

Respectfully submitted,

Dwight Alpern

2520 Oakenshield Dr.

Rockville, MD 20854