The Nickel Report

The Commonwealth of Massachusetts is poised to outline its planned steps to achieve the goals of its climate change-focused policies.  On December 7, 2020, the Massachusetts Executive Office for Energy and  Environmental Affairs (“EOEEA”) hosted a webinar to discuss the development and pending release of the Massachusetts Decarbonization Roadmap to 2050 (the “Roadmap”), which EOEEA indicates it will publish this month. The Roadmap constitutes the plan of the Commonwealth to identify cost-effective and equitable pathways and strategies for Massachusetts to reach Net Zero emissions by 2050, and the priorities to achieve an on-pace interim goal by 2030. In addition to the development of the Roadmap, the Commonwealth is in the process of preparing the 2020 update to the Clean Energy and Climate Plan (“CECP”), which is mandated to receive updates every five years under the Global Warming Solutions Act (“GWSA”).

While the pending issuance of the Roadmap and CECP should begin to firm up the initiatives necessary to achieve net-zero emissions by 2050 in Massachusetts, a number of other recent state and federal efforts that involve related key issues are also progressing. One high profile item, released on December 21, 2020, is the Transportation and Climate Initiative (“TCI”), a program that has been championed and led by the Commonwealth of Massachusetts. The TCI is modeled after the Regional Greenhouse Gas Initiative (“RGGI”), a cap-and-trade program for power plants in the Northeast. The TCI would set a limit on carbon emissions attributable to vehicles, which would decline each year.  Under the program, fuel suppliers would be required to buy carbon credits to cover their emissions, with proceeds directed back to states to spend on clean infrastructure projects.  The program currently is more modest than RGGI in terms of participation (only Massachusetts, Connecticut, Rhode Island, and the District of Columbia have signed on – the “Signatory Jurisdictions”).  It is expected that the TCI program would go into effect in 2022, with an anticipated reduction in emissions from vehicles by up to 25% by 2032.

Under the Memorandum of Understanding (“MOU”) executed for the TCI, the TCI will operate as a multi-jurisdictional cap-and-invest program, consisting of individual programs adopted and implemented under the independent legal authority of each Signatory Jurisdiction, designed to ensure reductions in CO2 emissions from the transportation sector. Each Signatory Jurisdiction, at its discretion, will seek to invest strategically in lower-carbon transportation options and other investments to further the goals described in this MOU. The Signatory Jurisdictions will release a coordinated final Model Rule after providing for a public review and input period on a draft model rule for the TCI. Each Signatory Jurisdiction commits to pursue any legal processes required to implement its program within its jurisdiction consistent with the Model Rule. The Signatory Jurisdictions intend that the first reporting period of the TCI will commence as early as January 1, 2022, and the first compliance period of the TCI will commence January 1, 2023, or at such later time as at least three jurisdictions have completed the legal processes required to implement their individual programs. The Signatory Jurisdictions intend to conduct one or more early CO2 allowance auctions in 2022.

The TCI Model Rule shall establish a multi-jurisdictional base annual CO2 emissions cap for the TCI program starting in 2023, which will be equal to the sum of the TCI participating jurisdictions’ CO2 emissions budgets.  “Affected Fuel” shall include the fossil fuel components of motor gasoline and on-road diesel fuel delivered for final sale or consumption in a TCI participating jurisdiction. “State Fuel Suppliers” shall be required to obtain allowances to cover CO2 emissions from the combustion of Affected Fuel and report such emissions. The primarily regulated parties shall be Position Holders, namely owners of Affected Fuel at fuel terminals. Other entities that deliver Affected Fuel will be regulated as State Fuel Suppliers only as necessary to ensure that all Affected Fuel is subject to an allowance holding obligation. State Fuel Suppliers and other fuel supply market participants may have other reporting or recordkeeping obligations.

1.State-to-Federal and State-to-State Policies Diverge

The year 2020 was interesting, as we saw state and federal policies appearing to be at odds, even if designed to account for shared concerns related to climate change.  For example, in October, the Federal Energy Regulatory Commission (“FERC”) issued a proposed policy statement to clarify that it has jurisdiction over-organized wholesale electric market rules that incorporate a state-determined carbon price in those markets. The proposed policy statement also seeks to encourage regional electric market operators to explore and consider the benefits of establishing such rules. As stated at the time by then FERC Chairman Neil Chatterjee,

As states actively seek to reduce greenhouse gas emissions within their regions, carbon pricing has emerged as an important, market-based tool that has wide support from across sectors…[t]he Commission is not an environmental regulator, but we may be called upon to review proposals that incorporate a state-determined state carbon price into these regional markets. These rules could improve the efficiency and transparency of the organized wholesale markets by providing a market-based method to reduce GHG emissions.

FERC’s proposed policy statement, which followed a technical conference on the subject, seemed to align well with state programs to address and mitigate the impacts of climate change. Nonetheless, in comments to FERC in response to the carbon pricing policy statement, the New England States Committee on Electricity (“NESCOE”) offered objections and concerns around any such efforts to include carbon pricing in electric markets. NESCOE, a not-for-profit entity that represents the collective perspective of the six New England Governors in regional electricity matters, offered concerns associated with potential impacts to consumer costs, requesting FERC to “include in any guidance it provides in a policy statement addressing carbon pricing in wholesale markets that consumer costs must be a key consideration in evaluating the justness and reasonableness of any proposal that comes before the Commission.”  More importantly, NESCOE also objected on jurisdictional grounds:

The integration of state-determined carbon pricing into wholesale markets also implicates foundational jurisdictional issues, as the Commission recognizes in the Proposed Policy Statement…NESCOE has expressed reservations about achieving the requirements of state laws through wholesale markets that are administered by an entity without direct accountability both to state officials charged with implementing state laws and to the consumers they serve…NESCOE shares the concern…that a policy statement not prejudge any proposals—proposals that may, in fact, unlawfully intrude into the authority of states. While the Proposed Policy Statement appears to affirm the central role that states occupy in setting any carbon price pursuant to their mandates, making clear that it is not the role of an RTO/ISO to set that price, it is critical for the Commission to clarify this division of authority in any policy statement.

NESCOE’s objections to FERC’s proposed carbon pricing policy statement appears at odds with key regional independent system operators who operate the regional electric grids throughout the United States. For example, the New York Independent System Operator (“NYISO”) has proposed to create a wholesale price on carbon equal to the social cost of carbon – which is significantly higher than the per ton of CO2 typically charged under RGGI. NYISO has drafted market rules  to advance decarbonization targets set by RGGI and the State of New York. Likewise, ISO-NE has voiced emphatic support for carbon pricing at a regional level. However, the ISO has not acted as specifically as has NYISO, suggesting that it would need the support of the six states or the federal government before it introduces a carbon pricing proposal. Discussions and efforts around carbon pricing in New England remain in progress, and include an October 2019 symposium and a March 2020 follow-on report by the MA Attorney General’s Office, which included an agreement that “[m]eaningful regional carbon pricing will be necessary, but not sufficient, for decarbonization of the regional power system or economy.” What results in New York may finally set the potential stage for state governments, ISOs, and federal agencies to align for climate action.

While the Commonwealth of Massachusetts moves to implement the TCI and issue the Roadmap and update to the CECP, it remains confronted with issues regarding the existing energy mix that the Commonwealth relies upon. As we reported in an earlier posting, on October 29, 2020, the Massachusetts Department of Public Utilities issued an order to open an investigation into the role of gas local distribution companies (“LDCs”) as the Commonwealth achieves its target 2050 climate goals (the “Order”). This process will move concurrently with the pending update to the CECP and the issuance of the Roadmap.  The DPU’s Order directs each natural gas LDC to submit a proposal to the DPU that includes the LDC’s recommendations and plans for helping the Commonwealth achieve its 2050 climate goals, supported by a Report on or before March 1, 2022. Prior to filing the Report and the LDCs’ proposals, the LDCs shall engage in a stakeholder process to solicit feedback and advice on both the Report and the proposals. Status updates on the LDC’s progress in response to the DPU’s Order are due on or before March 1, 2021, and again on September 1, 2021.

2. State and Local Misalignment

The objections from NESCOE highlight how federal, state, and local policy agendas may align in concept but can differ markedly on methodology or manner of implementation.  Such efforts can confront each other in unanticipated ways.  One need look no further than the Commonwealth of Massachusetts Attorney General Office’s action this year rejecting a municipal bylaw that would have outlawed new construction with oil or gas piping and heating. See previous post on this subject here.

In another example of how state and local processes may misalign on issues to address climate change, while the Commonwealth pursues the above described matters, the City of Boston plans to issue a draft Ordinance in the coming months to codify phased-in requirements for energy efficiency measures in new and existing buildings in the City designed to address long term effects from climate change.  To what extent these efforts may either involve or oppose the solutions proposed at the state level remains to be seen.

Taken together, there are unprecedented efforts underway to address the issues of climate change at the federal, state, and local levels in the northeast, and specifically Massachusetts. These issues will likely play out further in meaningful ways as the new, incoming Biden Administration takes office in January.